According to the Australian Bureau of Statistics (ABS), the average mortgage size in Australia is $500,000 (December 2019). Depending on where you live, this may sound like a lot – or very little – and that’s because the state or capital city you live in has a major influence on the size of your mortgage.
Depending on where you lay your stakes, the size of your mortgage can be vastly different.
It may come as no surprise that Sydney tops the list for the largest average mortgage size in Australia. But while Sydneysiders indeed pay a premium for their predictable weather patterns and sunny beaches, Melbourne homeowners are not too far behind.
Take a look at the average new lending amounts across Australia:
During the 2016 Census of Population and Housing, it was found that the median monthly mortgage repayment in Australia was $1,755. However, where you choose to live can have a stark difference on the figures.
Median monthly mortgage repayment by state:
For those who are new to the ‘mortgage world’, getting your head around just how much a mortgage can cost and how much you might be paying each month in repayments can be daunting. Before punishing yourself for paying more attention to your hair during high school maths class, check out eChoice’s loan repayment calculator.
The calculator is plug-and-play and allows you to get an estimate without doing any pesky maths.
The mortgage repayment is determined by the loan amount, loan term and interest rate. According to the eChoice loan repayment calculator, a $300,000 mortgage taken out at an interest rate of 3.92% over a 30-year term would equate to an estimated monthly repayment of $1,419 per month, with a total loan repayment of $510,640.
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The amount of money you can dedicate towards mortgage repayments depends on a variety of factors, such as your current income and living expenses – as well as the current interest rates on offer.
In general, many find the 28% rule a good rule of thumb. Under the model, mortgage repayments should represent no more than 28% of your monthly income.
Of course, this rule is only a suggestion – and it does not account for personal circumstances. To work out how much you can budget towards a mortgage from your monthly income, it’s best to map out your expenses and do the maths or seek the advice of a professional.
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If your monthly mortgage repayments are greater than 28% of your tax-free monthly income, you may be in danger of mortgage stress.
Historically, Australia is currently experiencing the lowest home loan interest rates ever seen. Due to this, many financial advisors feel that home loan holders have become complacent about home loan interest rates, naively believing they won’t rise. According to financial experts, this is a dangerous mindset that could be costly in the long-term, especially if home loan holders don’t have a financial buffer to cover rising expenses.
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There is no ‘set’ amount of time you have to pay off a house by, it all depends on the term of the loan, and other loan conditions which you would have negotiated with your lender. Typically, loans will run for terms between 10 and 30 years, depending on your loan type and the monthly repayments you can afford.
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There is no ‘average’ interest rate for home loans. Interest rates are constantly changing depending on the economic climate and the cash rate set by the Reserve Bank of Australia (RBA).
Historically, Australia is currently experiencing the lowest interest rates on record. As of April 2020, the interest rates for most lenders were sitting at around 4.63% but you can find rates as low as 2.47%. However, as those who were mortgage holders in the 90s would remember, in 1990 interest rates hit record highs, reaching as high as 17%.
There is nothing to stop interest rates from rising in the future – and likewise, nothing to stop interest rates from going down. It all depends on the economic conditions at play, which is why it’s important for home loan holders to be financially aware.
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Interest rates are influenced by the cash rate, and as of July 2020 the RBA the cash rate is 0.25% – a historic low. A low cash rate helps to keep interest rates down. However, the RBA meets every month to discuss the current economic climate, meaning this could rise at any time, potentially bringing interest rates up with it.
Other, more personal, factors also help lenders determine your mortgage interest rate. Your credit score, requested loan amount, loan term and interest rate type are just a few of the other factors lenders take into consideration when calculating your interest rate.
Everyone’s personal circumstances are different, and there’s no definitive way to say what mortgage amount you could qualify for.
When calculating your approval amount, your lender will likely consider factors such as your salary (including joint income if applicable), credit score, living expenses and more. Seeking pre-approval can be a good way to find out how much you could be eligible for.
Alternatively, the eChoice’s borrowing power calculator can be a useful tool to estimate how much you might be able to borrow.
Buying a home for the first time is a scary, daunting, confusing and exciting time. First home buyers are likely to go through a range of feelings, and at one point, a first home buyer is sure to wonder, am I doing it right?
When house hunting, working out just how much you should be borrowing can be hard. In cities like Sydney, where house prices may feel ridiculously expensive, a first home buyer can be left asking, “Is this normal?” Or, “How much should we be spending on a house?”
Just like that time you went to a restaurant hungry and ordered way too much food, and later regretted it, you don’t want to commit to a home loan amount that is more than you can handle.
Although we can’t tell you what loan amount is right for you (leave that up to your financial advisor), we can tell you what the average loan amount is for first home buyers, to help get you started.
Words by Kathryn Lee
Original: 11 April 2019.
Updated on 20 December 2020.
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This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs.
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