Each lender has their own specific calculator and as a qualified mortgage broker, we have the advantage of having access to all the different bank’s calculators. After entering some basic information based around income, expenditure and existing debt commitments, these calculators will produce a figure that the bank would be willing to lend you.
However, in many cases what the bank says you can afford will be much more than what may be realistically comfortable for you to repay each week or month. Remember they make profits by lending out money. How can you make an informed decision on how much you can afford to borrow? I suggest working backwards. Grab a pen and a piece of paper for this!
Work out your net weekly income. What you have left after tax has been taken out. As an example, if your gross salary is $85,000 per annum, or $1,634 per week and you are taxed $570, your net weekly income is $1,064. If you get overtime or bonuses sporadically throughout the year, estimate the total for the year and then average it out to give a weekly figure. If you are a couple work out your net weekly income each then add the two figures together.
Total net weekly income: $
You need to work out what your disposable income is. The money you have left over after your general living expenses and existing loan commitments are paid each week. Jot down these categories and pop a weekly figure in each. Be conservative.
Remember you don’t need to include any rent you are currently paying as you will be paying off a new mortgage instead!
- Groceries $
- Utilities $
- Clothing and personal care $
- Telephone, internet and pay TV $
- Recreation and entertainment $
- Medical and Health (excluding health insurance) $
- Transport (public transport, fuel, servicing, parking, and tolls etc) $
- Education and Childcare $
- Insurance (health, home, and contents, car, life, income protection etc) $
- Credit card repayments $
- Personal loan and/or car loan repayments $
- Other $
Total weekly expenses: $
Work out your disposable income. This figure is roughly what you can afford for a mortgage repayment per week. As an example, if your net weekly income is $1,064 and your total weekly expenses are $500, your disposable income is $564. So, $564 per week is roughly what you can afford as a mortgage repayment
Total net weekly income $ ( – minus)
Total weekly expenses $ ( = equals)
Disposable income $
Have a play around with loan amounts on Inovayt’s “Basic Loan Repayment” calculator https://www.inovayt.com.au/calculators/basic-loan-repayments/ until you find the loan amount suited to your disposable income in Step 3.
Pop a loan amount in at the top of the calculator, enter 30 years as the loan term and enter weekly as the frequency. As a guide, use 5% as the interest rate (this is roughly 1% higher than current bank interest rates so it allows for at least a few interest rate rises).
Hit “calculate” at the bottom of the blue panel and you will see the weekly repayment figure pop up under “periodic payment”. Remember we want this figure to match up to your disposable income figure in step 3.
You may have to keep adjusting the loan amount field at the top of the calculator until the periodic payment amount matches up to your disposable income figure.
This is not an exact indication of what the bank will lend you but it will give you a very good understanding of roughly how much you can afford to repay each week and therefore how much you would be comfortable borrowing from the bank.
Going through this process should also help you better understand your current circumstances and gives you an opportunity to really think about your existing expenditure and debt and identify areas where you might be able to make some changes in order to free up income and save money!