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Calculator Assumptions and Disclaimers

    Our calculator estimates your risk of mortgage stress by taking the following steps:

  • Breaking down your entered annual income into approximate monthly income by dividing the total by 12.
  • Breaking down your partner’s entered annual income into approximate monthly income by dividing the total by 12.
  • Comparing your entered monthly repayment to your approximate monthly income (yours plus you partner’s).
  • Displaying the result as a percentage on the table – results higher than 30 per cent are assumed to be in mortgage stress.
  • All calculations are estimates – they are not guarantees that you’ll be able to aford a particular home loan repayment and are not pre-qualifcations or pre-approvals for borrowing.
  • These calculations are only accurate for the information entered, and do not take into account future changes to you/your partner’s income, your home loan interest rate, or your mortgage repayments.
  • Diferent lenders may use diferent serviceability criteria to measure the risk of mortgage stress when you apply for a home loan.
  • Results are calculated based on pre-tax income and do not take any other living expenses into account.
  • Some people on high incomes may be comfortable paying 30% or more on housing or some people may have a solid bufer or back-up plan to make them comfortable taking on a larger debt.
  • The calculator is for information purposes only. Any advice is general and has not taken into account your personal circumstances.Read our full disclaimer.

How does the mortgage stress calculator work?

To calculate your level of potential mortgage stress, simply enter your details into the available fields, including:

  • Your pre-tax income,
  • Your monthly mortgage repayments, and
  • A partner's pre-tax income (optional).

The mortgage stress bar will then show visually how close you may be to experiencing mortgage stress.

  • Stress Free Zone: You are spending less than 20% of your income on home loan repayments. You are not in mortgage stress and are not likely to be in mortgage stress for some time.
  • Stress Danger Zone: You spend between 20-30% of your income on home loan repayments. You are close to the mortgage stress tipping point if interest rates were to rise or your financial situation were to change, but you are not yet in mortgage stress.
  • Mortgage Stress Zone: You are spending 30% or more of your income on mortgage repayments. You are already in mortgage stress.

What is mortgage stress?

The Great Australian Dream has always been to buy a property, but no one wants to fall into financial disarray just for trying to repay their mortgage. Mortgage stress is a measurement that can help indicate to borrowers if they are paying too high a portion of their income into their mortgage.

Mortgage stress is commonly defined as paying more than 30% of a household’s pre-tax income towards monthly mortgage repayments.

Some financial experts may view this as a simplification, and instead look to the Australian Bureau of Statistics definition, which applies the 30% rule to low-income households specifically (income in the bottom 40% of Australia’s income distribution). This is understandable when you consider that a high-income household earning $350,000 annually versus a household with an income of $70,000 annually would view that 30% figure significantly differently.

Regardless, aiming to keep your mortgage repayments at or below 30% of your pre-tax income is still a worthwhile measurement to keep in mind for any homeowner (and for renters as well). Mortgage stress can leave you in a vulnerable position if your financial situation changes, such as if your mortgage repayments increase, your household expenses increase, or your household income decreases.

Why are some Australians experiencing mortgage stress?

Between high levels of household debt, low wages growth and high house prices from a hot property market, many Australians are under financial pressure and at risk of falling victim to mortgage stress. The latest pandemic-related lockdowns put significant financial pressure on household budgets, forcing home loan lenders to implement hardship assistance packages for their customers - particularly those in NSW and Victoria.

First home buyers are often at risk, particularly those who have recently purchased property in capital cities like Sydney and Melbourne. However, the threat of mortgage stress remains real for any mortgage holder.

While Australia’s cash rate has been at record lows, there’s no guarantee that interest rates won’t begin to climb upwards in the future, putting more pressure on household finances. As interest rates are tipped to increase sooner rather than later, more Aussies may experience mortgage stress in the next few years.

By using a mortgage stress calculator, you can assess your financial situation, and prepare for any future interest rate rises.

What happens if you can’t pay your mortgage?

If you find yourself unable to repay your mortgage, there may be serious financial repercussions.

  1. Firstly, contact your lender to advise them that you’re in financial hardship and request hardship assistance. You may need to provide evidence of this through proof of a loss of income, for example.
  2. If your hardship assistance ends and you’re still unable to pay your mortgage, your home loan lender may then send you a letter of demand due to late payment. If a late payment exceeds 14 days, the lender may contact a credit agency and your credit score may go down. You may also have to pay a late fee on top of your next mortgage repayment.
  3. If your mortgage payment is 90 days overdue the lender may send a default notice, including legal right to change your loan terms (such as extending your loan term to reduce your repayments). This default notice may offer you a catch-up period, in which you must meet your mortgage repayments - typically within 30 days – or face further actions.
  4. Finally, if you’re still unable to meet your mortgage repayments, the lender may start court action by filing a statement of claim against you, giving you a final number of days to pay back your debt. After this, the lender will typically take possession of your home and sell the property to reclaim the loan debt.

How can I avoid mortgage stress?

If the Mortgage Stress Calculator shows that you’re at risk of financial pressure due to your home loan costs, now is the time to consider what options may best suit your situation and budget to reduce the pressure on your household budget.

Two of the simplest ways to avoid mortgage stress are to either increase your income or lower your home loan repayments.

While getting a pay rise may be a challenge – particularly in a time of low wage growth - you may be able to lower your monthly repayments by:

It is also possible to reduce your interest charges on your mortgage by utilising home loan features, like an offset account. Any funds that you deposit into your offset account work to “offset”, or reduce, the amount you pay in interest.

You may also want to consider making extra repayments into your mortgage if your lender allows this feature, as reducing your loan principal will help to lower your ongoing mortgage repayments.

How much could you save with a lower rate?

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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Frequently asked questions

How does a mortgage calculator work?

A mortgage calculator is an extremely helpful tool when planning to take out a home loan and working out the costs. Although each mortgage calculator you come across may be slightly different, most will help you estimate how much your repayments will be. The calculator will often also show you the difference in repayments if you repay weekly, monthly or fortnightly. 

To calculate these figures, you’ll be asked to enter a few details. These include the amount you plan to borrow, whether you’re an owner-occupier or an investor, the proposed interest rate and the home loan term. It will also often show you the total interest you’ll be charged and the total amount you’ll repay over the life of the loan.  

Understanding how the mortgage calculator works, helps you to use it to see how different loan amounts, interest rates and terms affect your repayments. This can then help you choose a home loan that you can repay comfortably and save on interest costs. The mortgage calculator lets you compare the benefits and costs of home loans from different lenders to help you make a more informed choice. Use a mortgage calculator to help identify which home loan is most suitable for your requirements and financial situation.

How do you calculate how much you could save with a lower rate?

To work out how much you could save, we run the home loan details you’ve provided through our database, and search for similar home loan options that we think would be suitable for you.

We then calculate the costs of these loan options over 15 years (to keep our calculations consistent) and compare them to the cost calculations for your current home loan.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.