Using a loan calculator, add the figure from Step 1 as your monthly repayment.If you earn $100,000 per year, 30% equates to $2,500 per month. Calculate 30% of your gross income on a monthly basis.Learn more about avoiding mortgage stress here. If rates rise, you won’t have much room to cut back on other expenses to compensate. However, if your mortgage is such a large proportion of your income, you can very quickly fall into mortgage stress. If you are very frugal with your spending, or you have a larger than average income, you might have significantly more than 50% of your income to spend on housing. This is to buffer you against interest rate hikes. When you’re measuring housing affordability, the rule is that your housing costs shouldn’t be more than 30% of your gross (pre-tax) income. If you’re buying into strata, that’s another expense that tenants don’t have to meet. As well as your mortgage payment, you’ll need to cover council rates, water rates and home maintenance costs. But how do you know if that’s enough? Home owner costs aren’t the same as those incurred by tenants. Your budget will tell you how much you have left over after paying expenses every month. The bank will want to know about every liability once you get to the point of applying for a loan, so it’s best to have these listed now. If you’re making credit card payments, paying off whitegoods or furniture, leasing a car or servicing a personal loan, those are part of your expenditure. You might be surprised at how many hidden costs there are. The best way to make sure you’re capturing all of your expenses is to download at least the last six months of bank statements and add up your spending. Rent, bills and other fixed expenses are relatively easy to assess, but variable costs can add up to far more than you realise. Your expenditure should also be as accurate as possible.
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