What Percentage of Your Income Should Be Your Mortgage?

Balancing income and mortgage payments has become a subtle art in 2025. It is challenging due to several factors, with the potential risk of mortgage stress that adds extra weight to homebuyers.

This begs the question, “what percentage of your income should be your mortgage repayments?”

Knowing the right answer to this, and successfully bringing it into practice, is important today for Australians. Especially since we want to prevent mortgage stress, ensure financial stability, and be able to meet our long-term financial goals.

The Current State of Australian Housing and Income Market

In Australia, the expense of getting a house has outpaced income growth in recent years:

• Nationally, the median full-time wage is about  $1,396/week ($72k pa).

• The average loan size for owner-occupier dwellings in Australia was $631,208 in 2024.

• This means the portion of income needed to service the average house is about 66.6% on a 27-year loan tenure (assuming 6.24% interest rate).

This is far beyond the recommended percentage of income needed for mortgage repayments, which we’ll get to in a moment.

Home values go higher depending on the city, with Sydney costing the highest at $1.19M median home value.

The “30% Rule” for Mortgage Repayments

With the affordability of homes getting far out of reach, it is crucial to keep your expectations realistic.

This is where the 30% rule comes into play.

The 30% rule is a common guideline suggesting you spend no more than 30% of your gross (pre-tax) income on mortgage repayments. It’s meant to leave room for other expenses and savings. 

This benchmark dates back decades as a simple affordability yardstick. It assumes moderate interest rates and living costs – conditions that have significantly changed in Australia.

But still, this is a safe threshold to follow for anyone who does not want to risk their mental health and financial stability.

Keeping housing costs around 30% helps ensure you can cover living expenses, bills and save. It’s a starting point for budgeting, but not a hard rule – especially given Australia’s high home prices and living costs today.

Plus, it is still a feasible budget for Australians with a high income.

So, consider this 30% rule as a base for budgeting, while still being flexible when absolutely necessary.

How to Calculate Your 30% Budget?

Always base 30% on pre-tax (gross) income. 

For instance, $100,000 pa gross is about $80,000 net after income tax (approx). In that sense, 30% of gross ($2,500/mo) corresponds to about 38% of net. It’s wise to check both perspectives.

Start by determining your household’s combined monthly income, then take 30% as the target for mortgage repayments. 

For example:

• A single income of $6,667/month (=$80k pa) yields a $2,000 budget.

• A dual income of $12,500 ($150k pa) gives $3,750.

Using current rates (say 6.5% over 30 years), a $2,000/mo repayment buys roughly a $316k loan. This clearly depicts the limits, as a $316k loan is far below Sydney’s median prices, showing 30% may be infeasible on average incomes in some cities.

Common Pitfalls of the 30% Rule

• “One-size-fits-all” fallacy: The 30% rule ignores personal differences. A family with children or health issues may need <30% for mortgage to afford everything else, whereas a dual-income couple with minimal expenses might comfortably exceed 30%.

• Outdated rule-of-thumb: Post-pandemic inflation and rate rises mean 30% of current income may leave very little for rising costs. For many Aussies, spending 30% on housing today may already signal stress.

• Ignoring interest variability: A 30% mortgage at today’s 6% rate might jump to 40%+ if rates rise. Budget with a buffer (e.g. plan for a 7–7.5% rate scenario) so you’re not caught off-guard by higher repayments.

• Neglecting lifestyle choices: The rule doesn’t account for discretionary spending. If you have big hobby or family costs, sticking strictly to 30% may leave too little for you. Conversely, cutting spending elsewhere might let you stretch higher than 30% safely (for example, by downsizing car costs or entertainment).

• Overlooking non-housing stressors: The rule is about housing, but financial health is also about debt levels and savings. Someone at 30% mortgage but with heavy car loans or zero savings might be worse off than a 40% payer who has no other debts and ample emergency funds.

Budgeting Strategies Beyond the 30% Rule

Full Expense Budgeting

Don’t fixate only on mortgage percentage.

Draft a complete budget: list all income and every expense (loans, cards, utilities, insurance, childcare, groceries, petrol, entertainment, etc.). 

Subtract these from income first and see what’s realistic for housing.

Save 20% Deposit

Whenever possible, save at least 20% upfront. This avoids LMI and often gets you a better interest rate.

Lender’s Mortgage Insurance (LMI) is the insurance premium you pay to protect the lender in case you default on your repayments.

In case you can’t save 20% for the deposit, you can still avoid paying LMI by utilising LMI waiver schemes for people in low-risk professions. But keep in mind that this may not get you a better interest rate, but would bring down your overall expense nonetheless.

Emergency Buffer in Offset or Redraw

Aim to save at least 3–6 months of living expenses, so you’re safe even in the worst case scenario. 

Even better, you can save this emergency fund in an offset account or redraw.

• The balance in your offset account is calculated against your loan balance, and the interest rate is calculated on this final difference.

  • For instance, a $50,000 balance in an offset account offsets the $500,000 mortgage balance. So the interest rate is calculated for $450,000.

• A redraw facility on your mortgage lets you pay extra money towards repayment, and allows you to later withdraw (or redraw) the surplus funds when needed.

These facilities let you save money in a way that brings your overall mortgage expense down. Plus, in tough times (job loss, interest hikes, etc.) this safety net is more important than meeting an exact 30% target.

Prioritise Debts

If you have other debts (car, personal loans, credit cards), pay or reduce those first. This will:

• Increase your chance of getting approved for the mortgage.

• Reduce your financial burden.

Lenders include all debt when calculating DTI (debt-to-income ratio). A high existing DTI (≥6 times the amount of your income) may reduce how much you can borrow, even if your mortgage repayments are only 30%.

Regular Review

After moving in, re-check your budget. If your income or costs change (new child, car, job change, etc.), recalculate. What was affordable last year may not be now.

Mortgage Stress in Australia

The financial burden where you spend more than 30% of your pre-tax income on mortgage repayments, leading to financial difficulties and anxiety, is called Mortgage Stress.

However, this is not a rigid rule and can depend on individual circumstances. 

A high-income household might comfortably allocate more than 30% of their income to mortgage repayments. On the other hand, a low-income household may struggle even if repayments are less than 30% of their income.

These are signs of being in Mortgage Stress once you’ve exceeded the 30% threshold:

• Difficulty making repayments.

• Relying on financial help from family or friends.

• Living paycheck to paycheck.

• Inability to save or budget for unexpected expenses.

• Using savings for repayments or household expenses.

Calculating a Safe Borrowing Limit

To ensure financial stability, it’s recommended to calculate 30% of your net take-home pay and get a mortgage that falls into this repayment budget.

At the same time, save for an emergency window and utilise any saving opportunities, like using an offset account or the redraw feature.

If you’re looking to get a mortgage, Koalify is one of the most-trusted mortgage brokers, with 2,000+ loan options and 30+ top lending partners across Australia.

We’ll help you handle the complexities of getting a mortgage, with unbiased expert guidance that acts in your best interests. That means if getting a specific mortgage could put a heavy dent on you, we’ll inform you the risks.

Plus, we’re free to you, with zero broker fees or commission. Contact us today!

This information is general in nature. It does not take your objectives, financial situation or needs into account. Consider whether it is appropriate before acting and, if necessary, seek independent advice.

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