Compare repayments on $1 million home loans

With house prices skyrocketing in some Australian capital cities and regional centres, the likelihood of paying a million dollars or more to buy a property may be higher than you think, whether you're an owner occupier or an investor.  

With this in mind, it’s important to consider whether you’re likely to be approved for a million dollar home loan, and whether borrowing this much money is likely to put your household finances under pressure.

Calculating your borrowing power requires looking at your income and expenses, as well as the loan details and how much you’ve saved for a deposit. And much like a lender, you can also calculate the repayments on a million dollar mortgage to work out if they’re likely to put you at risk of mortgage stress.

The repayments on a home loan are based on the loan type, loan amount, loan term, and interest rate. The higher the interest rate, the more you may pay in interest charges. And the longer your loan term, the less each monthly repayment may cost, but the more you may pay in total interest on the loan.

For example, here are the calculated monthly repayments for a $1 million dollar home loan with different interest rates and loan terms:

These hypothetical examples are for illustrative purposes only. These repayment amounts do not take the cost of fees, charges and taxes into account. They also assume that your repayment type is principal and interest, and that the interest will remain the same over the full loan term, which may not be the case for a variable rate. Even you choose a fixed rate home loan, it will eventually revert to a variable rate mortgage, so you'll likely experience interest rate changes. These examples also don't account for extra repayments or home loan features such as offset accounts and redraw that could affect your loan costs.

Knowing the cost of mortgage repayments is one thing, but knowing whether or not you can afford to pay them is another.

When you make a home loan application in Australia, responsible mortgage lenders will want to know about your income, expenses, and any other outstanding debts you owe (such as personal loans and credit cards) to estimate your debt to income ratio. If you’ll owe more money than you can realistically afford to repay, your mortgage application may be declined.

While there’s no universal rule for calculating mortgage stress, one common benchmark is that if more than one third of your household income is going towards servicing your home loan, you may be in financial stress.

A Borrowing Power Calculator can help you estimate the maximum loan size a lender may be willing to offer you, based on your income and expenses.

Also, keep in mind that you won't just have to make interest repayments on your million dollar home loan. There may also be fees and other charges to consider, which could affect your loan's total cost. Looking at a home loan's comparison rate can give you a better idea of its overall cost and value to you.

Like other home loans, refinancing a million dollar home loan may be worth considering at some point. When you have a relatively large loan amount, a small difference to your mortgage’s interest rate, fees, features or benefits could make a big difference to its total cost, as well as the value it offers. Comparing mortgage options can give you a better idea of whether there are other home loan choices out there that could better suit your needs. 

Remember that if you have less than 20 per cent equity in your property, your loan to value ratio (LVR) will be more than 80 per cent. This means you may be charged Lenders Mortgage Insurance (LMI) when you refinance, which could cost more than you expect. Also, remember that refinancing onto a longer loan term may help you make your monthly repayments cheaper, but you may pay more in interest on your loan over the life of the loan, even if your new interest rate is lower.

There are plenty of mortgage options to choose from when comparing home loans. A million dollars is a lot of money, so it’s often worth considering your choices carefully before making a decision.

Banks, including both retail banks and customer owned banks like mutual banks, credit unions and building societies, may offer home loan options to suit borrowers a variety of different financial situations.

There are also home loans available from specialist mortgage lenders, including online-only lenders. These lender may offer competitive mortgage rates and other features and benefits, though you may miss out on the option to visit a branch to discuss you home loan in person.

If you’re not sure of the best mortgage option for your million dollar home loan, you could also ways consider speaking to a mortgage broker. These home loan experts can look at your finances and provide advice on which lenders may let you borrow a million dollars or more to buy a property, including checking your eligibility for special mortgage offers that are exclusive to brokers. A broker may also be able to negotiate with a lender to help you get a better deal, and manage the paperwork on your behalf to help you save time and hassle.