What can you afford ?

What you can afford to repay

Lenders want to be sure you’ll be able to keep up with your repayments and still have enough money left over to live on. They don’t all work this out the same way.

Percentage of income

Some say that your fixed payments (mortgage repayments plus any other loan or hire purchase payments) should be no more than 30% to 40% of your gross income.

Knowing what your income is and what your existing fixed payments are, you can work backwards to find the level of mortgage repayment a lender will allow. Then you can experiment with the mortgage repayment calculator to see what size loan you could afford with these repayments.

Some lenders also have calculators on their websites to give you a rough idea of how much you can borrow. These calculators may not take into account your current debt situation, so you’ll get a better indication by contacting a bank or broker directly.

Minimum surplus

Tip: Use our mortgage repayment calculator to work out how much you can afford to borrow.

Some lenders calculate a minimum ‘surplus’ that you should have left over each month after fixed payments and a living allowance are deducted. This is called ‘UMI’ (uncommitted monthly income) and varies from bank to bank.

If you're a couple, the calculations are based on your combined income. If you have children, lenders will expect you to have less disposable income.

If you're borrowing a high proportion of the purchase price, lenders will expect you to have more spare income. This is so you can better deal with any future uncertainties like a rise in interest rates or a reduction in your income. For example, if you are borrowing 95% some banks will want to see a UMI of $750 to $1000.

Flatmates helping with the bills

If you plan to have flatmates in your new home to help pay the bills, some lenders will include 70% to 80% of their rent in your income. Other lenders won't include any.

The easiest way to find out how much you can borrow through a lender is to give them your income and spending details and ask them to make the calculation. Or, you could ask a mortgage broker to do this for you.

Based on the details you give them, a lender may give you ‘pre-approval’ of the amount they are willing to lend you. Treat this as an upper limit rather than a starting point

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