Can you afford home loan repayments?

Before you consider applying for your first or next home loan, it’s crucial that you crunch the numbers to discover if you can comfortably afford the repayments.

The Great Australian Dream is to own property, but in reality, your monthly home loan repayments can leave people feeling very vulnerable – particularly in a rising rate environment.

While it’s an important future investment, you shouldn’t live above your means or you will risk finding yourself in hot water if rates rise and possibly unable to make your repayments.

Even if you gain approval for a loan amount, you may still find yourself in ‘mortgage stress’ – when your repayments are greater than 30% of your household income – if you stretch yourself too thin. It’s great to dream big but the first thing you should do when considering taking out a loan is to calculate how much you can actually afford to repay. 

Luckily, there are helpful tools and calculators available that do the hard work for you.

Your home loan repayment calculators

• Borrowing Power Calculator

Before you begin comparing home loans and crunching monthly repayment numbers, it may be worth starting from the beginning: calculating your borrowing power.

By working out how much borrowing power you have, you can calculate the size of a home loan you can afford – including your ideal mortgage repayments. This may help you to stay on budget and avoid mortgage stress.

The calculator replicates the application process and eligibility assessment that most Australian lenders perform by comparing common factors, including your:

• Income
• Expenses
• Assets
• Liabilities
• Credit Score
• Deposit

You’ll then be shown a loan amount range you may be approved to borrow, from low to medium and high. It’s safe to say that if you’re shopping around for homes on the high end of your borrowing power (or higher), you may struggle to afford these home loan repayments.

• Mortgage Repayment Calculator

One easy way to work out what size home loan you can afford is to calculate the potential home loan repayments for a variety of loan options.

Once you have established how much you can comfortably pay off each month, this will give you a good budget for the amount you can borrow and the home you can afford to buy. Again, generally speaking, most lenders suggest you shouldn’t allocate more than 30% of your monthly household income to repay your home loan.

Firstly, use our helpful home loan comparison table to compare home loans. Create a short list of options you may like, or use it as a guide to see what current market rates are. This can help you determine mortgage affordability and whether you should borrow a smaller amount to live more comfortably. 

Then, hop on the Mortgage Repayment Calculator and enter the loan amount you may be approved to borrow (as determined by the Borrowing Power Calculator), plus one or more of the rates you’ve found from your short list of home loan options.

Finally, factor in rate fluctuations of 2-3%. Over a 20-30-year home loan, it is inevitable that the market will shift, and your interest rate will move. You want to ensure that you can afford repayments on current interest rates and in a higher-rate environment.

• Mortgage Stress Calculator

RateCity's Mortgage Stress Calculator may help you to estimate your financial risk with your current mortgage repayments, or potential repayments from your shortlist of options.

Simply enter your household income and the monthly mortgage repayments (as determined by the Mortgage Repayment Calculator) to instantly see how close you may be to mortgage stress.

The mortgage stress bar visually shows you how close you may be to experiencing mortgage stress with those repayments. Put simply, you can see easily if you can actually afford your mortgage repayments. 

How to find the best loan for you

One of the most important things to remember when applying for a home loan is that everyone’s financial situation is different. You will want to do your own research to see which home loan is going to suit you and your financial situation.

Get busy crunching the numbers without home loan calculators or speak to a mortgage broker for personalised information. It’s never too soon to start shopping around for a great home loan, as comparing your options and doing your research will ultimately help you decide if you can afford to buy.

Compare home loans in Australia