The bank's maximum is not your target
Your mortgage repayment is the single largest ongoing cost of homeownership, and getting it wrong can dominate your finances for decades. This step explains how figures are shaped by your loan, how the 30% threshold works, and how to set a repayment ceiling that leaves you room to live, not just survive.
- As of February 2026, 1.32 million Australian mortgage holders (24.9%) were classified as "At Risk" of mortgage stress, projected to rise above 1.6 million if rates keep climbing .
- Nationally, a median-income household now needs 50.3% of income to service a new mortgage on a median-priced dwelling, up from 29.6% in 2020 .
- The average first home buyer loan reached $607,624 in December 2025, up 24.6% year-on-year .
These are not hypothetical figures. They represent real households trading off repayments against groceries, car repairs, and medical bills.
What actually drives your repayment
Your monthly repayment is driven by three variables: the loan amount, the interest rate, and the loan term. Change any one, and the repayment shifts. Here is what monthly repayments look like across different loan sizes at 6.0% over 30 years:
Loan amount | Monthly repayment | Annual repayment |
|---|---|---|
$400,000 | $2,398 | $28,776 |
$500,000 | $2,998 | $35,976 |
$600,000 | $3,597 | $43,164 |
$700,000 | $4,197 | $50,364 |
$800,000 | $4,796 | $57,552 |
These figures assume principal and interest repayments. Interest-only loans have lower initial repayments but do not reduce the debt, meaning you pay significantly more over the life of the loan.
Why 30% is a ceiling, not a target
The 30% rule is the most widely used benchmark for mortgage stress in Australia. If your repayments exceed 30% of your gross household income, you are considered in mortgage stress . The Australian Housing and Urban Research Institute (AHURI) refines this with the 30:40 indicator, applying the threshold only to households in the bottom 40% of the income distribution, on the basis that higher-income households spending 30% may be doing so by choice . In practice, 30% has become the standard reference point across lenders, researchers, and government reports.
Here is what the 30% threshold looks like at different income levels:
Gross household income | 30% threshold (annual) | 30% threshold (monthly) |
|---|---|---|
$80,000 | $24,000 | $2,000 |
$100,000 | $30,000 | $2,500 |
$120,000 | $36,000 | $3,000 |
$140,000 | $42,000 | $3,500 |
$160,000 | $48,000 | $4,000 |
Compare these against the repayment table above. A household earning $100,000 gross with a $600,000 loan at 6.0% would pay $3,597 per month. That is 43% of gross income, well into mortgage stress territory.
Spending exactly 30% on repayments leaves no margin. You have not accounted for council rates, insurance, strata levies, maintenance, or the inevitable rate rise. A safer target is 25% of gross income, which gives you a buffer for the costs that sit on top of the mortgage.
The bank will lend more than you can afford
Banks assess your borrowing capacity using a . The Australian Prudential Regulation Authority (APRA) requires lenders to test whether you can still meet repayments if interest rates rise by at least 3 percentage points above your loan rate . From February 2026, APRA also limits new loans with a of six or above to no more than 20% of each lender's new mortgage book . If you want to borrow six times your income or more, fewer lenders will approve you.
The bank's maximum is not your target. A lender might approve you for $700,000, but that does not mean your household can comfortably manage $4,197 a month plus rates, insurance, strata, and maintenance. Work backwards from your budget, not forwards from the bank's offer.
How a single rate rise reshapes your budget
Interest rates move. The RBA cash rate sat at 4.10% in March 2026, up from 3.60% six months earlier . Every rate rise flows through to variable-rate mortgage holders within weeks.
Here is how a 1% rate increase affects monthly repayments on different loan sizes (principal and interest, 30-year term):
Loan amount | Repayment at 6.0% | Repayment at 7.0% | Monthly increase |
|---|---|---|---|
$500,000 | $2,998 | $3,327 | +$329 |
$600,000 | $3,597 | $3,992 | +$395 |
$700,000 | $4,197 | $4,657 | +$460 |
$800,000 | $4,796 | $5,322 | +$526 |
A 1% increase on a $600,000 loan costs an extra $395 per month, or $4,740 a year. That money has to come from somewhere. If your budget was already tight at 30%, a rate rise pushes you into genuine financial hardship.
Setting your repayment ceiling
Use this process to set a ceiling you can actually live with:
- 1Start with your gross household income. Use the figure your employer reports, before tax.
- 2Calculate 25% of gross income. This is your target repayment ceiling. It leaves headroom for ownership costs and rate rises.
- 3Add 3% to the current interest rate. This mirrors APRA's serviceability buffer. If rates are 6.0%, test your repayments at 9.0%.
- 4Check the repayment at the stress-tested rate. If the repayment at the higher rate still falls under your 25% ceiling, you have breathing room. If it does not, reduce your borrowing amount.
- 5Subtract other ownership costs. Council rates, insurance, strata levies, and maintenance all come on top. Later steps in this lesson help you estimate these.
The ASIC MoneySmart mortgage calculator is a free tool that lets you run these scenarios with your actual numbers . Use it before you talk to a lender, not after.