Affording Mortgage - Estimating Affordability and Household Savings - Family of 5

Hey OzBargainers,

Planning to take on a large mortgage ($1.69m / 53% of net income) and currently working on the family budget to make sure this can be done without too many issues. Noting that my circumstances are way better than many Australians out there doing it really tough, I would still appreciate other experience and wisdom in such matters.

At the moment we spend quite a bit, as we aren't paying a mortgage, and I'm trying to see where we can reasonably cut back.

Situation is as follows:

  • Family - 2 Adults - 3 Kids (at public schools and under all under 11yrs)
  • Income (net): $9100/fn ($236,600/yr)
  • Mortgage (proposed) $4850/fn ($126,100/yr)
  • Remainder (for saving / spending): $4250/fn ($110,500/yr)

Given we are spending more than $4250/fn now, do 5-people families currently working to a budget think this is a workable number for their circumstances (my feelings are this works ok). We like the odd holiday, driving locally and wouldn't mind a simple OS holiday every few years.

For reference I calculate our current expenditure to be approximately as follows:

  • Supermarket Food: $630/fn (almost no eating out)
  • Car Costs (petrol,parking,basic services): $480/fn
  • Insurances (house,car,health etc): $426/fn
  • Utilities (gas,elec,internet,phones): $250/fn
  • Medical: $150/fn
  • School: $70/fn
  • Pets: $70/fn
  • Holidays: $230/fn
  • Kids Care (before/afterschool): $240/fn
  • Coffee: $60/fn
  • Sub Total: $2560/fn
  • Other (clothes, household items, presents etc): $1820/fn

I feel this other category at $1820/fn can take some serious trimming without us suffering too much, but wanted to get a gauge on what others are spending in similar circumstances.

For those out there, how does this compare with similar composition families? Are my numbers way out with yours? Does this other category sound excessive?

Finally does a mortgage @ 53% of net income compare reasonably with others out there in similar situations?

Comments

  • Sorry OP, you'll struggle to find a bank willing to lend you that much.

    My household net income is close to yours and the bank doesn't want to lend us more than $1 mill which i think is still ridiculously high (no dependents)
    But hey, if you want to spend your entire life paying off a mortgage and possibly end up retiring with debt then go ahead.

    But to me you're not earning enough to warrant that level of debt, especially with 2 kids. Throwing away $1.5 million in interest repayments over the life of the loan sounds horrendous. Spend another couple of years increasing your deposit and reducing your loan amount, especially in a cooling market.

    • that can't be right surely, pre covid banks were lending 6-7x gross income as a rough rule of thumb, now maybe 4x, 1mil sounds a bit low for your income

    • All incomes I provided are net incomes (as I can't spend our gross income; sadly) so perhaps that might be the difference??

      It's actually 3-kids too, which is fun, but not great for the budget.

      And yes a bank would do very well out of us if we go ahead.

  • +1

    You actually want a bit of buffer so that you can pay down the mortgage quickly (extra $100 per fortnight etc) because mortgage on PPOR is not great debt.

    But you can thank those people who think negative gearing is "the ATO paying your mortgage" (which it isn't, it is just a tax deduction against other sources of income which otherwise would be carried forward, like capital losses in absence of capital gains to offset) It is also why I think giving financial advice on real estate should probably be regulated because anyone can give advice right now without accounting for people's personal circumstances

  • If you love your jobs, you make enough to go for it. But also consider how easy it is for your jobs to be replaced by a machine in the next 5-10 years. That's going to surprise a lot of people. Consider that risk.

  • I think the mortgage is a little big. Your budget I think is reasonable but already on the tight end to me. Your “other” category comes to about 43k pa. Take away 8k in rate and some maintainance every now and then you have 35k left. To be safe add another 2% on top of the currrent rate which is 34k, so basically nothing left.

    If the house price keeps going up then it is not big an issue since you can get out anytime, otherwise could be stressfull if such scenario materialises.

  • Alot of information missing. This isn't a poker game where you protect your hand - it is financial planning.
    You haven't mentioned how old you are, what your net assets are, what your gross income is, what other investments you have, how much super you have or what your long term plan is for retirement.
    Start there then tell us about your pre-approval for the mortgage.

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