Imagine this: You’re scrolling through TradeMe, and suddenly, you spot your dream home. Your heart races, but then reality hits – can you afford it? If you’re nodding along, you’re not alone. Figuring out how much mortgage you can afford in New Zealand is like solving a puzzle, but don’t worry – we’re here to help you piece it together!

The Big Question: How Much Can You Borrow?

Let’s cut to the chase – generally, most Kiwi banks lend you up to five times your annual income, now this is a rough estimate as some do less and some also consider a little more. So, generally, if you’re earning $80,000 a year, you might be able to borrow up to $400,000. But hold your horses! It’s not that simple.

Banks look at more than just your income. They are like those nosy neighbors, peeking into your financial life. They’ll check your:

• Your income (of course!)
• Your expenses (yep, those subscriptions and takeaways count)
• Your debts (student loans, car loans, credit cards, you name it)
• Your credit score (it’s like your financial report card)
• Your deposit (the bigger, the better)
• and much more….

The 30% Rule: Your New Best Friend

Here’s a handy trick – the 30% rule. It is suggested that your mortgage payments should not be more than 30% of your income before tax (banks usually prefer 28%). So, if you’re earning $5,000 a month, aim to keep your mortgage payments under $1,500 (approximately). But remember, this is just a guideline. Some folks might be comfortable spending more, while others prefer to keep it lower. It’s like choosing between flat whites and long blacks – it’s personal!

Let’s look at a real-life example. Sarah and Tom are a young couple earning $120,000 combined annually. They’ve saved up $100,000 for a deposit. Sounds great, right? But they also have a car loan, love to eat out regularly, and like to travel.

Based on the 5x income rule, they could qualify to borrow up to $600,000. With their $100,000 deposit, they could be considering homes around $700,000. But is this feasible for their situation? Additionally, how will the lender assess their application, especially given their existing loan and spending patterns?

Pros and Cons: Borrowing to Your Maximum Capacity

Pros:

• You might get your dream home sooner
• Potential for greater capital gains if property values increase

Cons:

• Higher mortgage payments mean less money for other things (goodbye, weekend brunches!)
• More financial stress if interest rates rise or your income drops
• Longer time to pay off your mortgage

Top Tips for Figuring Out Your Affordable Mortgage

• Use online calculators: Many NZ banks have mortgage calculators on their websites. Play around with these to get a rough idea.
• Factor in all costs: Don’t forget about rates, insurance, and maintenance. Owning a home is more than just the mortgage!
• Consider your lifestyle: Do you want to keep traveling? Planning for kids? Your mortgage should fit your life, not the other way around.
• Consider the future: Could you still afford your mortgage if interest rates increase? What if there was a sudden drop in income?
• Seek Professional Guidance: Consult a mortgage advisor who can tailor their advice to your unique circumstances and guide you through the process.
• Get pre-approval: This gives you a clear idea of what the bank will lend you.

The LVR Factor: What’s That All About?

LVR, or Loan-to-Value Ratio, represents the amount you are borrowing compared to the property’s value. In New Zealand, most banks usually require a 20% deposit for owner-occupied homes, which results in an LVR of 80%. However, if you are a first-time homebuyer, there’s good news—you might qualify with just a 5% deposit through the First Home Loan scheme. Keep in mind, though, that this option comes with its own set of requirements and regulations. Visit the page for more accurate and up-to-date information on this scheme.

Interest Rates: The Game Changer

Interest rates can shift unexpectedly, and even a small increase can have a significant impact on your repayments.

Here’s an example based on a $100,000 mortgage over 30 years:

• At 5% interest, your monthly repayment is about $537 (around $124 per week).
• At 6% interest, it rises to about $600 monthly (around $138 per week).
• At 7% interest, you’re looking at roughly $665 per month (about $153 per week).

That’s an increase of over $128 a month (or about $29 a week) between 5% and 7%! While banks use higher test rates to evaluate your financial stability, it’s still wise to account for potential future rate increases when calculating your own affordability.

The Deposit Dilemma: How Much Do You Really Need?

The bigger your deposit, the smaller your mortgage. Simple, right? But saving a deposit can be challenging. Here are some ways to boost your deposit:

• KiwiSaver First Home Withdrawal: If you’ve been in KiwiSaver for at least 3 years, you might be able to use some of your savings when buying your first home.
• First Home Loan: You could apply for this and get support if you meet the criteria.
• Bank of Mum and Dad: If you’re lucky enough to have family who can help, this can be a game-changer.
• Savings Plan: Set up automatic transfers to a separate savings account. It’s like putting your savings on autopilot!

The Power of a Bigger Deposit

Let’s go back to Sarah and Tom. Remember they had a $100,000 deposit for a $700,000 home? That’s a 14.3% deposit. If they waited and saved up to a 20% deposit ($140,000), they could:

• Borrow less, reducing their mortgage payments
• Potentially get a better interest rate
• Have more choices of lenders

The Long-Term View: Think Beyond the Purchase

Buying a home is exciting, but remember – you are in this for the long haul. Consider:

• Career plans: Are you likely to get regular pay rises? Or thinking of a career change?
• Family plans: Kids on the horizon?
• Retirement: Will you still be paying your mortgage when you want to retire?

Wrapping It Up: Your Mortgage, Your Choice

So, how much mortgage can you afford in NZ? The answer is: It depends on your income, your expenses, your plans, economy, and your comfort level with debt.

It is good to remember:

• Just because a bank will lend you an amount, doesn’t mean you should borrow it all
• Your mortgage should fit your life, not rule it
• Always factor in potential changes – in interest rates, your income, and your life plans
• Connect with an expert broker who can work with you.

Buying a home is a big step, but with careful planning, it can be an exciting journey rather than a stressful one. So crunch those numbers, dream big, but keep it real.

Your future self (and your bank account) will thank you!