Working out how much you can afford

First home ownership can feel complicated, especially if you have an irregular income or a small deposit. Let’s get an idea of how much you can borrow.

Remember, any advice provided on this website is of a general nature only and does not take into account your personal needs, objectives and financial circumstances. You should consider whether it is appropriate for your situation.

Interest rate

Picture this: you’re in your very own kitchen, making mac’n’cheese, looking out of your window across your very own neighbourhood. Later, you’ll take a stroll to your very own high street and wave hello to the people who run your new chip shop, knowing you can keep coming back every day.

Forever, if. you want to.

Whether you’re eyeing off a sweet apartment or going thirds in the suburban dream, owning your own place is a huge, exciting commitment. But to avoid heartache while scouring real estate listings, here’s how to figure out a ballpark on what you can really afford.

Rate type

The next thing to consider is how you’ll structure your interest rate.

Calculate your current living expenses

Let’s start at the beginning. When you ask any bank about getting a home loan, they’re first going to work out something called your ‘borrowing power’. No, it’s not the well kept secret of a really boring superhero. Borrowing power is how much you’ll be able to borrow, and then spend along with your deposit, on finally nailing picture hooks into your very own walls.

Banks calculate your borrowing power based on your whole financial situation. They don’t just want to know how much you have and what you earn – they’ll also assess what goes out. That means everything you’re regularly spending. Rent, car, public transport, food, phone, streaming services, sneaky wines; the lot. They’re also going to consider your other debts and lines of credit. For example, a car loan or the top limit of that credit card you got for emergencies would likely be counted towards your liabilities.

The good news is, if you’re an Upsider, you already know more about your spending habits than most people. That’s the first hurdle out of the way before you even start. You know where your money is going, how it breaks down by category, and the variation from month to month (we get it! sometimes the extremely comfy undies are on sale!).

Done? Grab those figures and set them aside.

Play around with some calculators

You know what you’re spending each month (and you’ve chosen to just not think too much about the part that goes on late-night food cravings: fair). This forms the basis of what you’ll be able to borrow.

We’ll level with you: now it gets complicated. A lender will need to look at what you spend, current and projected interest rates, the size of your deposit, whether you’re applying with someone else and more. The nature of your income can have an impact: if you’re a casual with irregular income, or rocking the gig economy, you might be looking at a different figure from someone on a full-time salary. And different banks will come up with different numbers.

Your borrowing power will also depend on whether you choose a principal + interest or interest-only loan, and whether you opt for a fixed or variable interest rate. Plus, you’ll need to factor in any establishment fees, conveyancers, insurances, stamp duty and other costs that come with mounting the first rung of the property ladder.

Sorry, that’s a lot. What lenders are looking for is actually simple, though: to know that you can service your mortgage (= make repayments) now and when life inevitably changes. Will you still be able to afford it if interest rates skyrocket, or your roster drops off, or you adopt several dogs?

That expenses figure you definitely wrote down earlier? Plug it into a few different lenders’ borrowing calculators and see what comes up. Try it a few more times with different expenditure amounts, so you can see how your repayments might change with your circumstances. Nasty surprises belong in Squid Game, not your mortgage.

Decide how much you’re comfortable repaying

Experts – who are often people who don’t have to worry so much about what they spend, so take this with a grain of salt – suggest a safe estimate for mortgage repayments is 30% of your income. Some banks even use this figure to calculate borrowing power. So, if you’re earning $50,000 p.a., you might allocate about $1300 a month to paying off your new place.

But maybe that’s not right for you. Maybe you want to keep a bit in the tank, knowing that your income fluctuates or that you might want to, say add a kiddo to your family or go live in Seoul for a year. It’s totally acceptable – admirable, even – to decide you’d be more comfortable with a smaller mortgage repayment.

Playing around with figures can help you strike the balance between your budget and your heart. It’s also totally reasonable to give a few lenders a call and talk through numbers without a clear intent to borrow right now. With a clearer picture of your finances, you’ll know where to set your ‘from’ and ‘to’ price filters to avoid disappointment.

Now let’s do some late night scrolling on the home listings, and have a little dream.