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.
Unfortunately for Sydney house hunters, the average mortgage size in NSW is $621,500. Compare that to Victoria’s average mortgage size of $517,900 and you will see that Sydneysiders indeed pay a premium for their predictable weather patterns and sunny beaches. In fact, Sydney has the biggest average mortgage size in Australia.
Take a trip across the Bass Strait and – all jokes aside – when comparing mortgage sizes, it’s as if you are in another country. Yes, in the land of the Tassie Devil, and in stark comparison to their Victorian neighbours, Tasmanians have the lowest average mortgage sizes in Australia. Tasmania has an average mortgage size of $333,900, almost $250,000 below NSW’s average.
During the 2016 Census of Population and Housing, it was found that the median monthly mortgage repayment in Australia was $1,755. However, there is a stark difference between our capital cities and the area you choose to buy in will make a major difference to whether your monthly repayments sit above or below this figure.
The table above shows the median of average mortgage repayments in Australia’s capital cities. Again, Sydney ‘wins’ the round, with a median monthly mortgage repayment of $2,167 – the most expensive of the capital cities. Perhaps surprisingly, this is followed closely behind by Darwin, with a median monthly mortgage repayment of $2,171.
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 put towards a mortgage repayment depends on your salary. In general, a good rule of thumb is the 28% rule – meaning that mortgage repayments should be no more than 28% of your monthly income.
Of course, this rule is only a suggestion, and the amount of money you decide to put towards your mortgage repayments is entirely dependent on your situation. For example, if you are paying off student loans, perhaps you will want to decrease this percentage. The same goes if you have other debts you’re paying off. The important thing is that you are making mortgage repayments that you can handle.
Again, every situation is different, and no amount of general advice can truly take your individual needs into account. If you are still unsure, you may wish to seek the guidance of a financial advisor who can take your needs into account and offer some advice to help you make a decision.
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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.
There’s no way for sure to say what mortgage amount you will qualify for, because everyone’s personal circumstances are different.
When calculating your approved home loan amount, your lender will likely take factors such as your salary, whether it is a joint loan, credit score, living expenses and more into consideration.
In the meantime, eChoice’s borrowing power calculator is a useful tool to estimate what pre-approved loan amount you could be looking at.
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 15 July 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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