One Formula Tells You If Your Mortgage Will Break You. Most People Get It Wrong.

I'm going to give you a three-minute self-test that could save you from financial ruin. No exaggeration.

Every week, someone contacts our team after buying a property they can't afford. They bought it because a mortgage broker told them they were 'pre-approved for $850,000,' which they interpreted as 'you should borrow $850,000.' Those are wildly different statements.

Pre-approval tells you what the bank will lend. It doesn't tell you what you can comfortably repay. And the gap between those two numbers is where middle-class Australians go to drown.

The rule is simple. Your monthly mortgage payment — principal and interest — must not exceed 30% of your gross household income 1. If it does, you're in mortgage stress territory. If it hits 40%, you're in mortgage crisis territory.

Let me show you the formula, walk you through three income scenarios, and then explain why the people telling you to stretch beyond 30% are all getting paid when you do.

The formula

Maximum monthly mortgage payment = Gross monthly household income x 0.30

Gross means before tax. Household means all income earners in the household combined.

Example: Household income $120,000/year = $10,000/month gross. Maximum monthly mortgage: $10,000 x 0.30 = $3,000.

At current rates (around 3.5% for an owner-occupier principal-and-interest loan), $3,000/month services a loan of approximately $670,000 over a 30-year term 2.

Add your deposit. If you've saved $100,000, your maximum purchase price is $770,000.

That's it. That's the ceiling. Not a target. Not a 'nice to have.' The ceiling.

Now let me run three scenarios that cover most first-home buyers and investors I work with.

Scenario 1: Single income, $80,000/year

Monthly gross income: $6,667. Maximum mortgage payment (30%): $2,000. Maximum loan at 3.5% over 30 years: $445,000. With $60,000 deposit: Maximum purchase price $505,000.

At $505,000, you're looking at established houses in regional Victoria — Geelong (Norlane, Corio), Ballarat, or Bendigo. Three-bedroom houses on 500+ square metres that rent for $350-$420/week 3. Not glamorous. Not inner-city. But serviceable, cash-flow positive, and within your actual means.

What you absolutely cannot do at this income level: buy a $700,000 house in Melbourne's suburbs because someone told you to 'stretch a bit.' At $700,000 with $60,000 down, your mortgage is $640,000 and your monthly repayment is $2,874. That's 43% of your gross income. One rate rise of 1% pushes it to 49%. You're underwater.

I've seen this play out. A client came to me after buying a $720,000 property on an $85,000 salary because their broker said they could 'just afford it.' Within 18 months, rates rose, their repayments went up by $380/month, and they had to sell at a loss. The broker got their commission. The client lost $45,000.

The broker isn't your friend. The formula is your friend.

Scenario 2: Dual income, $150,000/year combined

Monthly gross income: $12,500. Maximum mortgage payment (30%): $3,750. Maximum loan at 3.5% over 30 years: $835,000. With $120,000 deposit: Maximum purchase price $955,000.

This is the sweet spot for Melbourne's southeastern suburbs. At $955,000, you can buy a $700,000 house in Hampton Park or Cranbourne, add a $110,000 granny flat, and still have room for $15,000 in cosmetic renovation — with your mortgage comfortably below the 30% threshold.

Combined rent on a well-executed dual-income property: $850-$950/week 4. Monthly rent: $3,683-$4,117. Monthly mortgage on $835,000: $3,750.

The rent covers the mortgage. You're positive. You sleep at night.

But here's where people go wrong. At $150,000 combined income, the bank will pre-approve you for $1.1-$1.2 million. A mortgage broker will show you properties at $950,000-$1,000,000. Your parents will tell you to buy in a 'nicer suburb.' Your mates who bought in 2015 will tell you that 'you just have to stretch.'

Ignore all of them. The formula doesn't care about opinions. It cares about cash flow.

Scenario 3: High income, $250,000/year combined

Monthly gross income: $20,833. Maximum mortgage payment (30%): $6,250. Maximum loan at 3.5% over 30 years: $1,390,000. With $250,000 deposit: Maximum purchase price $1,640,000.

At this level, you have genuine flexibility. But the trap becomes more sophisticated. Because at $1.6 million, you're shopping in suburbs where properties are $1.8-$2.0 million, and the temptation to stretch 'just another $200,000' is immense.

Don't.

A $1.8 million purchase with $250,000 down means a $1,550,000 mortgage. Monthly repayment: $6,960. That's 33.4% of your income. Already over the line. One of you loses their job, takes parental leave, or has a health setback, and you're at 50%+ of a single income. Mortgage stress doesn't discriminate by income bracket 5.

High-income households have a specific vulnerability: lifestyle inflation. Your spending expands to match your income, which means your actual buffer is smaller than it looks on paper. A couple earning $250,000 with two car loans, private school fees, and a lifestyle that costs $15,000/month has the same financial resilience as a couple earning $100,000 with no debt and modest expenses.

The 30% rule applies to everyone. No exceptions.

Stress-testing beyond 30%

The 30% rule is the baseline. Smart investors stress-test further.

Here's my stress test: calculate your mortgage repayment at 2% above the current rate. If it still falls below 35% of household income at the elevated rate, you're genuinely comfortable.

Example: Current rate 3.5%, stress-test at 5.5%. On a $670,000 loan:

• At 3.5%: $3,008/month
• At 5.5%: $3,803/month
• On $120,000 income: 38% of gross income at the stress rate.

That's above 35%, which means this borrower should consider reducing their loan to $580,000 (maximum purchase of $680,000 with $100K deposit) to maintain buffer 6.

Banks already do this assessment internally — APRA requires lenders to stress-test at a minimum 2.5% above the offered rate 7. But banks use the stress test to determine maximum lending capacity, not comfortable lending capacity. There's a difference.

Maximum capacity = what you can technically repay without defaulting. Comfortable capacity = what you can repay while still living, saving, and absorbing shocks.

I want my clients in the comfortable zone, not the technical zone. Because technical capacity assumes nothing goes wrong. And something always goes wrong.

Who benefits when you overborrow

Let me be direct about this because it matters.

When you borrow more than you should, the following people benefit:

The mortgage broker. They earn a commission of 0.5-0.7% of the loan value (upfront) plus a trailing commission of 0.15-0.20% annually 8. A $900,000 loan pays them $4,500-$6,300 upfront. An $800,000 loan pays $4,000-$5,600. They have a financial incentive to maximise your loan.

The selling agent. Their commission is typically 1.5-2.5% of the sale price. Every $50,000 more you spend puts $750-$1,250 in their pocket.

The bank. They earn interest. More principal = more interest income. A $900,000 loan at 3.5% generates $31,500/year in interest. An $800,000 loan generates $28,000. That's $3,500/year of additional revenue for lending you money you don't need.

None of these parties share your risk. If you default, the broker keeps their commission. The agent keeps their commission. The bank takes your house.

The only person who bears the downside of overborrowing is you.

The 30% formula protects you from their incentives. It's not conservative. It's rational. And in 15 years of property investment, I have never — not once — seen a client who stayed below 30% end up in financial trouble. Not one.

I've seen plenty who went above 30% and regretted it.

Do the maths. Trust the formula. Ignore everyone who tells you to stretch.