Knowing how much mortgage you can afford is one of the most important steps when buying a home in Australia. Your borrowing capacity depends on your income, expenses, interest rates, and how lenders assess your financial situation.
Banks don’t simply look at your income — they assess your overall financial position to determine how much you can safely borrow.
Most lenders apply a stress test by assessing your loan at a higher interest rate than the current market rate.
As a general guide, many lenders allow borrowing of around 5–6 times your annual income, but this varies significantly depending on your financial situation and expenses.
For example, a household earning $120,000 per year may be able to borrow approximately $500,000–$700,000 depending on debt levels and interest rates.
There are several ways to improve how much you can borrow:
Just because a lender approves a certain amount doesn’t mean you should borrow it. It’s important to leave room in your budget for:
It depends on your income, expenses, and current interest rates. Most lenders use detailed affordability assessments rather than simple formulas.
The 30% rule suggests spending no more than 30% of your income on housing, though this is only a guideline.
Yes, lenders carefully assess your living expenses when determining borrowing capacity.
Typically 5–20% of the property value, though smaller deposits may require lenders mortgage insurance (LMI).
You should also understand how much upfront savings are required. Read our guide: How much deposit do I need?