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How Much Mortgage Can You Afford? The Numbers to Check Before You Buy

Finding out how much a lender may let you borrow is only one part of deciding how much home you can afford. A mortgage that technically fits a lending assessment can still put pressure on a household budget once property taxes or council rates, insurance, utilities, maintenance, HOA or strata fees, repairs and other expenses are added in.

Affordability depends on several moving parts working together:

• Your income
• The size of the mortgage
• Your down payment or deposit
• The interest rate
• The loan term
• Existing debts
• Recurring household expenses
• Property-related costs
• The cash reserves you have left after buying

Running a few different mortgage scenarios before you buy can help you see how much financial breathing room you would actually have — rather than discovering it after settlement.

1. How Much You Can Borrow vs How Much You Can Afford

These two questions sound similar, but they are answered by different people using different criteria.

• Borrowing capacity is an assessment made by a lender. It reflects how much the lender may be willing to lend you under its own criteria.
• Personal affordability is whether the repayments and the associated costs of owning the home fit comfortably within your own finances and priorities.

When assessing an application, a lender may consider factors such as your income, employment, existing debts, credit history or credit profile, living expenses, dependants, the loan term, interest rates, and applicable lending regulations and internal lending criteria. These requirements differ between lenders and between countries — US and Australian lending rules, for example, are not the same.

Smarter Mortgage Calculator does not assess borrowing capacity or loan eligibility. It estimates repayments and loan costs so you can explore the numbers yourself. And it's worth remembering that you don't necessarily need to borrow the maximum amount a lender offers.

2. Start With the Mortgage Repayment

One of the easiest ways to begin testing affordability is to estimate the actual principal-and-interest repayment. Consider this illustrative example:

Illustrative estimate using standard monthly amortization, with the rate fixed for the full term and no fees or other costs included.

That $2,528 is only the principal-and-interest repayment on the loan. It is not necessarily the total monthly cost of owning the property. For the maths behind this figure, see How Mortgage Repayments Are Calculated.

3. Don't Forget the Costs Outside the Mortgage

The true monthly cost of owning a home usually includes more than principal and interest. Which costs apply — and how large they are — varies considerably by location, property type and loan.

In the United States, costs may include:

• Property taxes
• Homeowners insurance
• HOA fees, where applicable
• Private mortgage insurance (PMI), where applicable
• Utilities
• Maintenance and repairs

In Australia, costs may include:

• Council rates
• Home and building insurance
• Strata or body corporate fees, where applicable
• Utilities
• Maintenance and repairs
• Lenders Mortgage Insurance (LMI), where it applies to the loan

Not every homeowner pays every item on these lists, but together these expenses can materially change what a home really costs each month. It's worth getting local estimates for the specific property you're considering. For more on LMI, see Lenders Mortgage Insurance Explained.

4. Your Down Payment Changes More Than the Loan Amount

A larger down payment, or deposit, reduces the amount you need to borrow. On a $500,000 property:

Borrowing less can potentially reduce the required repayment, reduce total interest, lower the loan-to-value ratio and, in some situations, affect whether mortgage insurance applies. But using more cash upfront also reduces the liquid savings you have left after the purchase — and that buffer can matter just as much.

We explore this trade-off in detail in Bigger Down Payment vs Smaller Down Payment: How Much Can You Really Save?, and the Mortgage Deposit Guide covers deposit sizes and loan-to-value ratios.

5. Interest Rates Can Change What Feels Affordable

The same mortgage balance can produce noticeably different repayments at different interest rates. Using the same $400,000, 30-year principal-and-interest mortgage:

Illustrative estimates using standard monthly amortization. These rates are examples only and are not a prediction of future rates or an indication of the rate you may be offered.

A two-percentage-point spread in this example changes the estimated repayment by about $526 a month, on exactly the same loan. That's why affordability shouldn't be judged using the property price alone. See How a 1% Interest Rate Change Affects Your Mortgage for a closer look.

6. Existing Debts Matter

Existing financial commitments affect how comfortable a new mortgage may feel. These can include:

• Car loans
• Personal loans
• Credit card balances
• Student debt
• Other mortgages
• Other recurring financial obligations

Every dollar committed to an existing debt is a dollar not available for the mortgage or the rest of your budget. Lenders may also take existing debts and financial commitments into account when assessing an application, although how they do so varies between lenders and countries.

7. Leave Room for Life Outside the Mortgage

Being able to make a mortgage repayment doesn't necessarily mean the mortgage will feel comfortable. Most households also want money available for things like:

• Emergency savings
• Retirement savings or investing
• Children and family expenses
• Transport
• Healthcare
• Repairs
• Travel and lifestyle spending
• Unexpected expenses

This is the idea of financial breathing room: the margin between what you need to pay and what you have coming in. There's no single correct amount, because it depends on your household, but it's worth asking yourself:

8. Should You Use the “30% Rule”?

You may have heard rules suggesting housing costs should take up no more than a particular percentage of income — 28%, 30% and 36% are common examples. Rules like these can be useful as rough reference points, but they aren't universal affordability rules, and they have real limitations.

Two households earning the same income may have completely different debts, family costs, taxes, insurance, childcare expenses, transport costs, savings and lifestyle priorities. A single percentage can't capture those differences, so a repayment that is comfortable for one household may be a stretch for another.

Rather than relying only on a generic percentage, it's usually more useful to model your actual numbers.

9. Test a Higher Interest Rate

A personal stress test simply means looking at what your repayment would be at a somewhat higher interest rate, so you can see how sensitive your budget is to a change in borrowing costs. For example, someone considering a mortgage at 6.5% could also look at the repayment at 7.5% — $2,797 rather than $2,528 a month in our example.

This isn't a prediction that rates will rise, and it isn't the same as a lender's serviceability or qualification assessment, which uses its own criteria. It's simply a way of understanding how much room you'd have if repayments increased. You can compare rates side by side in the Smarter Mortgage Calculator.

10. Don't Empty Your Savings Just to Buy the House

The down payment or deposit isn't necessarily the only cash needed to buy a home. Depending on where you live and your circumstances, you may also face:

• Closing costs (US) or settlement costs (Australia)
• Legal or conveyancing fees
• Building, pest or home inspections
• Moving expenses
• Taxes or government charges, such as transfer taxes or stamp duty
• Insurance
• Immediate repairs
• Furniture or appliances

Keeping an emergency or cash buffer after settlement can help you handle unexpected repairs, a change in income or a rise in repayments without relying on high-interest debt. The right amount depends on your own situation.

11. A Simple Affordability Check

These questions aren't financial advice or a lender assessment, but they can help you think through the numbers. The Mortgage Affordability Calculator can help you put figures to several of them:

1. What would the principal-and-interest mortgage repayment be?
2. What other property costs would I need to pay?
3. What existing debts and recurring expenses do I already have?
4. How much cash would remain after the purchase?
5. Would I still have an emergency buffer?
6. What would happen to the repayment if the interest rate were higher?
7. Would I still have enough room for savings and normal life expenses?
8. Am I comfortable with this repayment, rather than simply eligible for it?

12. Run More Than One Scenario

It's tempting to test only your ideal scenario. Comparing several combinations is usually more revealing, for example:

• Different property prices
• Different down payments
• Different interest rates
• Different loan terms
• Different repayment frequencies
• Additional repayments, where relevant

Seeing scenarios side by side can show where a mortgage starts to feel uncomfortable. The Smarter Mortgage Calculator lets you change these inputs and compare the estimated repayment and total interest for each. If you're also weighing extra payments, see How Extra Repayments Can Reduce Mortgage Interest.

Frequently Asked Questions

Conclusion

The question isn't simply “How much can I borrow?” A more useful question is:

Property price, down payment, interest rate, loan term and loan structure all influence the mortgage repayment. Debts, property expenses, savings and lifestyle costs determine how that repayment fits into the bigger picture. Testing several scenarios before you make a decision can help you see both sides clearly.