How much should you be spending on your mortgage?

Summer is when there is heightened activity in the property markets and many buyers are taking their leap into property ownership.

This time of year also brings many other expenses and Christmas spending can take a toll on the household budget.

If you’re looking to buy a home this summer, you’re probably wondering how much of your take-home income should you be allocating to your mortgage.

A widely accepted benchmark for mortgage repayments is about 30 per cent of your household income. When it comes to financial stability, the higher the percentage above 30 per cent is when financial pressures and mortgage stress starts to limit your spending.

Mortgage stress will occur when you start to feel limited for spending on necessities like groceries and unexpected health expenses.

Take this 30 per cent as a guide, but not a set rule. There are other factors that will contribute to affordability, such as location, household size and lifestyle that will determine how much you can comfortably afford.

So, what is the average Australian paying?

With high interest rates and inflation, we are at a point where mortgage repayments are at an all-time high.

The latest Real Estate Institute of Australia Housing Affordability Report revealed Australians are now typically spending a deeply concerning 48 per cent of their household income on their mortgage repayments.

This equates to an Australian average monthly home loan repayment of $3,926 for the average home loan, which is $636,209.

When we drill down by location, New South Wales raises the bar with an average of $4,760 per month for mortgage repayments and an average home loan of $771,422, followed by Victoria at $3,806 per month for an average home loan of $616,877, and third are Queensland homeowners who are paying $3,727 per month for an average home loan of $603,988.

Mortgage stress and lifestyle

To understand why mortgage repayments and the percentage of income is so important, we must consider how this impacts daily life. According to the Australian Bureau of Statistics (ABS) the average monthly costs for Australian households are:

1. Groceries

The average Australian household spends approximately $600 to $1,000 per month on groceries, depending on the household size and dietary preferences.

2. Entertainment and leisure

Australians spend around $200 to $500 per month on entertainment, which includes dining out, streaming services, movies and recreational activities. This category often sees cutbacks when households experience financial strain.

3. Utilities and transportation

• Utilities (electricity, gas, water): $300–$500 per month
• Transportation (fuel, public transport): $400–$800 per month

4. Savings and miscellaneous costs

Households are encouraged to allocate 20 per cent of their income to savings or emergency funds, which is roughly $1,667 per month for a household earning $100,000 annually.

So, how do you know if you are at risk of mortgage stress:

The main signs of mortgage stress will appear over time and can include:

• Falling behind on mortgage repayments
• Relying on credit cards or loans for daily expenses
• Neglecting bills or other financial obligations
• Experiencing high levels of anxiety about finances

Mortgage stress is a common challenge for Australian households, but it can be managed with proactive planning and smart financial habits.

By keeping mortgage repayments within 30 per cent of gross income, understanding household budgeting, and implementing strategies to avoid or mitigate stress, can safeguard financial health and secure long-term stability.

Eight tips to manage the household finances

1. Set a realistic household budget

Knowing your budget and upcoming expenses can really combat overspending. Your detailed budget should include mortgage repayments, fixed costs (utilities, insurance) and variable costs (entertainment, groceries). By tracking where you spend money, you will be able to identify where to cut back.

2. Know your repayments

Speak to a mortgage broker to understand all your borrowing options because borrowing within your means is crucial. The loan amount should be comfortable to repay and allow you to maintain financial flexibility even if interest rates rise, you have unexpected expenses, or your income decreases.

3. Put money aside in an emergency fund

Putting aside at least three to six months’ worth of living expenses can help you overcome any unexpected financial challenges, such as job loss or medical emergencies.

4. Refinance your mortgage

If interest rates fall or your credit profile improves, consider refinancing your mortgage to secure a lower interest rate or extend your loan term to reduce monthly repayments. This can also be achieved if you’ve been with the same lender for many years and have been a good customer.

5. Increase your income

If you are unable to reduce expenses, you might be able to explore increasing your income. Investigate whether you can create any additional income streams, such as freelance work, a part-time job, or renting out a spare room.

6. Seek professional advice

A financial advisor or mortgage broker can help you restructure your debts, negotiate with lenders, and identify cost-saving opportunities.

7. Cut back on non-essential expenses

Reduce spending on entertainment, dining out, and luxury items. This can free up cash for mortgage repayments without compromising your essential needs. Consider your subscriptions like Netflix, Stan, Foxtel, etc and consider what you could do without.

8. Utilise the benefits of offset accounts

An offset account linked to your mortgage can reduce the amount of interest you pay, potentially saving you thousands over the loan term.