{"id":150512,"date":"2025-03-05T15:30:49","date_gmt":"2025-03-05T04:30:49","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=150512"},"modified":"2025-02-03T10:08:34","modified_gmt":"2025-02-02T23:08:34","slug":"how-much-of-your-income-should-you-spend-on-a-mortgage","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/how-much-of-your-income-should-you-spend-on-a-mortgage\/","title":{"rendered":"How much of your income should you spend on a mortgage?"},"content":{"rendered":"

When it comes to buying a new property, one of the first things to think about is how much money you can afford to repay each month.<\/p>\n

While taking out the largest mortgage possible might seem tempting, the higher the mortgage, the higher the repayments, so too much could see you end up with very little left over each month.<\/p>\n

Or worse, put you at risk of mortgage default.<\/p>\n

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Tip: <\/span>Obviously, you need to be able to meet any other financial obligations you have after your mortgage payment has left your account, but you also need to consider additional bills, incidentals, and even recreational spending.<\/p><\/div><\/div>\n

And there\u2019s one easy way to work it out:<\/p>\n

Consider your mortgage as a percentage of your income.<\/em><\/p><\/blockquote>\n

Here\u2019s how it works.<\/p>\n

What percentage of your income should you spend on a mortgage?<\/span><\/h2>\n

There are three different calculations you can use to work out what percentage of income should mortgage be<\/span>.<\/p>\n

Examples are provided as a guide to calculate income to mortgage ratio, using Australia\u2019s average gross salary of $1,923.40 per week<\/strong> - or $8,334.73 per month<\/strong> - according to the latest ABS figures<\/a>.<\/p>\n

The 28% rule<\/h3>\n

Many lenders and mortgage brokers use the 28% rule, which dictates that you should use a maximum of 28% of your gross (pre-tax) monthly income on a mortgage repayment.<\/p>\n

Any more and you could risk falling into what some people call \u201cmortgage stress.\u201d<\/p>\n

Using the ABS\u2019 latest data on average weekly earnings in Australia the calculation would look like this.<\/p>\n

$1,923.40 x 4 (weeks) x 0.28 = $2,154.20 per month<\/strong><\/p><\/blockquote>\n

Under this rule, the maximum amount the borrower can afford for mortgage repayments is $1,154.20 per month<\/strong>.<\/p>\n

The 35% \/ 45% rule<\/h3>\n
<\/div>\n

This is another housing payment rule using your gross monthly income and also takes into account your post-tax income.<\/p>\n

The rule dictates that the mortgage percentage of income shouldn\u2019t be more than 35% of your gross income and not more than 45% of your net income after tax.<\/p>\n

This is a handy calculation if you have a lot of tax deductions or have an income in a high tax bracket.<\/p>\n

Again, using Australia\u2019s average weekly earnings, the calculation would look like this.<\/p>\n

$1,923.40 (gross income) x 4 (weeks) x 0.35 = $2,692.76<\/strong><\/p>\n

$1,484.00 (net income) x 4 (weeks) x 0.45 = $2,671.20<\/strong><\/p><\/blockquote>\n

Under this rule, the maximum amount the borrower can afford for mortgage repayments is $2,671.20 per month<\/strong>.<\/p>\n

The 25% post-tax rule<\/h3>\n

The final rule uses only net or post-tax, income and states that a maximum of 25% of your net income can go towards mortgage costs.<\/p>\n

Again, using Australia\u2019s average weekly earnings with the tax removed, the calculation would look like this.<\/p>\n

$1,484.00 (net income) x 4 (weeks) x 0.25 = $1,484.00<\/strong><\/p><\/blockquote>\n

Under this rule, the maximum amount the borrower can afford for mortgage repayments is a much lower $1,484.00 per month<\/strong>.<\/p>\n

However, it is worth noting that each person\u2019s financial situation is different and there are some who would be better suited to one method versus another.<\/p>\n

\"Mortgage<\/p>\n

The average monthly mortgage payments in Australia by state<\/span><\/h2>\n

The average loan size for owner-occupier dwellings (including construction and the purchase of new dwellings and existing dwellings) as of August 2024 varies across each state.<\/p>\n

It\u2019s also worth noting that these are average figures so some loans and repayments could be much higher or smaller.<\/p>\n

Here is the average loan size for each state, according to ABS figures, and an estimate of monthly repayments using Canstar\u2019s home loan repayments calculator which is calculated using a $600,000 loan repayment of principal and interest, over 30 years, 80% LVR, at a rate of 6.86%.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
State<\/th>\nAverage loan size<\/th>\nAverage monthly repayment<\/th>\n<\/tr>\n
NSW<\/td>\n$771,422<\/td>\n$5,060<\/td>\n<\/tr>\n
VIC<\/td>\n$616,877<\/td>\n$4,064<\/td>\n<\/tr>\n
QLD<\/td>\n$603,988<\/td>\n$3,962<\/td>\n<\/tr>\n
SA<\/td>\n$555,934<\/td>\n$3,647<\/td>\n<\/tr>\n
WA<\/td>\n$552,154<\/td>\n$3,622<\/td>\n<\/tr>\n
TAS<\/td>\n$467,057<\/td>\n$3,064<\/td>\n<\/tr>\n
NT<\/td>\n$416,667<\/td>\n$2,733<\/td>\n<\/tr>\n
ACT<\/td>\n$613,612<\/td>\n$4,025<\/td>\n<\/tr>\n
Australia<\/td>\n$631,208<\/td>\n$4,173<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Source:<\/strong> Australian Bureau of Statistics lending indicators<\/em><\/a>, and Canstar\u2019s home loan repayments calculator<\/em><\/a>.<\/p>\n

How much income do you need to buy a house in Australia?<\/span><\/h2>\n\r\n\r\n\r\n
<\/div>\n

When it comes to working out the amount of money needed for a mortgage in Australia, the answer is based on a myriad of factors.<\/p>\n

Unfortunately, there isn\u2019t a magic formula that will tell you that you need $x income to buy a $1 million house\u2026 because your income is just one part of the equation.<\/p>\n

Why?<\/p>\n

Because of the way the banks calculate mortgage affordability, the amount of mortgage you may be eligible for is dependent on not just your income, but your situation and expenses too.<\/p>\n

Here are some examples of roughly how much you need to earn to buy a house, but note that these figures are estimates and are calculated assuming the borrower has no debts, liabilities, or dependents, and using an example interest rate of 5.99% per annum over a 30-year loan term.<\/p>\n

To buy a $300-340k house you need a $50,000 salary<\/h3>\n