Can I Afford a $700,000 Mortgage in Australia?

Understanding Your Financial Position

Before diving into mortgage applications, it's critical to have a clear understanding of your current financial situation. This involves assessing your income, expenses, debts, and savings. Lenders typically use a debt-to-income ratio to gauge your ability to manage monthly mortgage payments alongside other debts. Generally, a ratio below 30% is considered favourable.

Calculating the Required Income

To afford a $700,000 mortgage, your income plays a pivotal role. Assuming an interest rate of 6% over 30 years, your monthly repayments would be approximately $4,200. To comfortably cover this, your annual income should be at least $140,000, considering a third of your income goes towards mortgage repayments. However, individual circumstances vary, so it's crucial to tailor this to your specific situation.

Budgeting for Homeownership

Owning a home comes with additional costs beyond the mortgage. These include council rates, insurance, maintenance, and utility bills. It's wise to allocate around 1-2% of your home's value annually for maintenance. Therefore, for a $700,000 property, budget $7,000 to $14,000 yearly for upkeep.

Practical Tips for Mortgage Affordability

1. Boost Your Deposit: A larger deposit reduces the loan amount and interest paid over time. Aim for at least a 20% deposit to avoid Lender's Mortgage Insurance (LMI).

2. Improve Your Credit Score: A higher credit score can secure better interest rates. Regularly check your credit report for accuracy and resolve any issues promptly.

3. Consider Loan Features: Offset accounts and redraw facilities can offer flexibility and savings over the life of the loan. Discuss these options with lenders.

Common Mistakes to Avoid

• Overestimating Income: Always base affordability on consistent income, not potential earnings or bonuses.

• Ignoring Additional Costs: Homeownership is more than monthly repayments. Factor in all associated costs to avoid financial strain.

• Skipping Pre-Approval: Securing pre-approval gives a clear picture of what you can borrow and strengthens your position with sellers.

How Esteb and Co Can Help

At Esteb and Co, we understand that navigating the mortgage landscape can be overwhelming. Our experienced brokers are here to assist you in finding the best mortgage solution tailored to your financial goals. We offer personalised advice, comprehensive market analysis, and support throughout the entire mortgage process. Let us help you turn your homeownership dream into a reality.