How much can I afford to borrow for a mortgage with my salary?
Here's a quick way to calculate what you can afford to borrow and repay based on your income.
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When a lender looks at your mortgage application, they generally assume about 30% of your gross income can be used to make loan repayments. Then they factor in your debt, assets and spending to forecast your borrowing power.
To get a rough idea of what you can realistically expect a bank to lender you, you can make a rough calculation by looking at:
- Your annual income
- Your deposit size
- Your average expenses
How can you estimate an affordable property price?
Take 30% of your annual gross income, equate this into a loan amount using an average rate of 2.75%, factor in a 10% deposit, and then use these calculations to estimate a potential purchase price.
Assuming that you don’t have any debts or liabilities, and using a rate of 2.75% over a 30-year loan term, here are three potential scenarios:
Scenario 1 - $50k income
- $50,000 annual gross income @ 30% = $1,250 per month.
- With a mortgage at 2.75% p.a. this equates to a loan amount of $305,000.
- With a 10% deposit contribution worth around $34,000, the maximum affordable property price would be $339,000.
Scenario 2 - $75k income
- $75,000 annual gross income @ 30% = $1,875 per month.
- With a mortgage at 2.75% p.a. this equates to a loan amount of $460,000.
- With a 10% deposit contribution worth around $51,100, the maximum affordable property price would be $511,000.
Scenario 3 - $100k income
- $100,000 annual gross income @ 30% = $2,500 per month.
- With a mortgage at 2.75% p.a. this equates to a loan amount of $614,000.
- With a 10% deposit contribution worth just over $68,000, the maximum affordable property price would be $682,000.
How can first home buyers prepare for home ownership?
If you're a first home buyer and you've saved up a deposit, test yourself using a mortgage repayment calculator.
- Work out how much you currently spend on rent.
- Calculate what your monthly mortgage repayments would be with a loan amount you feel comfortable with.
- What's the difference? Can your bank balance handle the increased costs?
To make this test more real, try it for a few months and actually remove the extra money from your spending account. Can you live without it? You may even be able to ask your HR or payroll department to actually start splitting your pay and transferring that money straight into a different high interest savings account, so you don't even have the temptation to spend the money or be responsible for transferring it yourself.
Be sure to factor in other ongoing costs, such as home and contents insurance or body corporate fees.
You can still try this test if you're currently living with your parents. You just need to estimate your costs for groceries and utilities along with your mortgage costs.
What about self-employed borrowers?
Looking for a home loan? Check out these offers and apply today
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
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