How Much Mortgage Can I Afford in Australia?
Last updated: 6 May 2025
The question every Australian property buyer asks — and the answer is more nuanced than most online calculators suggest. What you can afford and what a bank will actually lend you are two different calculations, and understanding both is essential before you start inspecting properties.
The two affordability questions
Question 1: What will the bank lend me? This is determined by your income, expenses, existing debts, and the property price. Banks use a standardised assessment process that we'll walk through below.
Question 2: What can I comfortably repay? This is a personal judgement that considers your lifestyle, financial goals, job security, and how much buffer you want. The bank's approval doesn't mean the repayments won't strain your budget.
The most financially prudent approach is to find the overlap: what the bank will lend, filtered by what you can genuinely sustain.
How Australian banks assess mortgage affordability
Australian lenders follow guidelines set by APRA (Australian Prudential Regulation Authority). The core assessment has four components:
1. The assessment rate (currently ~9.5%)
Banks don't test your ability to repay at the current interest rate. They add a 3% buffer to the actual loan rate. With mortgage rates currently around 6.5%, the assessment rate is approximately 9.5%. Your borrowing power is calculated based on what you can afford at this higher rate.
This buffer exists because interest rates change. If you're approved at 6.5% and rates rise to 9.5% during your loan term, you should still be able to meet repayments. The buffer is APRA's way of ensuring the financial system doesn't get overexposed to rate-sensitive borrowers.
2. The 35% income rule
Most lenders cap total monthly debt commitments (your mortgage plus all other debt repayments) at approximately 35% of gross monthly income at the assessment rate. If you earn $120,000 per year ($10,000/month), your maximum total debt payment would be $3,500/month at the assessed rate.
3. HEM expense floor
The Household Expenditure Measure (HEM) is a minimum living expense benchmark. If your declared expenses are below the HEM for your income level, the bank uses the HEM figure instead. This prevents borrowers from understating expenses to qualify for more. HEM benchmarks range from approximately $2,200/month for low-income singles to $5,000+/month for high-income households.
4. Debt-to-income (DTI) ratio
Your total debt (including the new mortgage) divided by your annual gross income must typically be below 6×. A $700,000 loan on $120,000 income is a DTI of 5.83× — manageable but near the threshold. Above 6×, most lenders will apply additional scrutiny or decline the application.
A worked example
Sarah earns $95,000 per year and wants to buy in Brisbane. She has a car loan costing $450/month. Her declared monthly expenses are $2,800.
| Input | Value |
|---|---|
| Annual income | $95,000 |
| Monthly income | $7,917 |
| HEM floor (her income band) | ~$3,000/month |
| Effective expenses used | $3,000 (higher of declared vs HEM) |
| Existing debts | $450/month |
| Assessment rate | 9.5% |
| Max debt payment (35% rule) | $2,771/month |
| Available for mortgage | $2,321/month ($2,771 – $450) |
| Estimated borrowing power | ~$275,000 |
Sarah's borrowing power of ~$275,000 might surprise her. The car loan significantly reduces her available serviceability. Paying off the car loan first would increase her borrowing power by approximately $65,000.
What reduces your borrowing power
- Existing debts: Car loans, personal loans, HECS/HELP repayments — each $500/month in debt reduces borrowing power by approximately $65,000
- Credit card limits: Lenders count the full limit as a commitment, even if the balance is zero. A $10,000 card limit reduces borrowing by approximately $50,000
- Dependants: Each child typically reduces borrowing by $30,000–$60,000 due to higher HEM benchmarks
- Low deposit: Below 20% LVR, LMI adds cost and some lenders apply stricter criteria
- Employment type: Casual, contract, and self-employed borrowers face higher income scrutiny
What you can actually afford vs what the bank will lend
Getting approved for the maximum loan a bank will offer is not the goal. Consider these practical affordability checks:
- The 28% rule: Housing costs (mortgage + rates + insurance) should ideally be below 28% of gross income
- Buffer test: Can you still make repayments if your income drops 20%? Or if rates rise another 2%?
- Life goals test: Do the repayments leave room for holidays, children, emergencies, and investing for retirement?
A mortgage you can technically afford but that leaves you financially stretched for 30 years is a different outcome to a mortgage that fits comfortably within your budget.
Tools to calculate your numbers
- Borrowing Power Calculator — estimates your maximum loan using bank-style criteria
- AU Mortgage Calculator — monthly repayments, amortisation chart, and extra repayment savings
- HomeVerdict — AI-powered verdict on a specific property: Comfortable, Stretch, High Risk, or Proceed with Caution
- Stamp Duty Calculator — upfront costs for all Australian states
This guide is general information only and does not constitute financial advice. Always consult a licensed mortgage broker or financial adviser before making property decisions. Sources: APRA, ATO 2024–25 tax tables.