How to Survive Getting a Mortgage
The number that decides how much you can borrow is not your income, and it is not the interest rate on the loan. It is the rate the lender pretends you will be paying.
Australian lenders assess your ability to repay at your actual rate plus a 3% serviceability buffer, set by APRA and in place since October 2021. At a 6% loan rate, you are assessed at 9%. On a typical household income that buffer reduces borrowing capacity by roughly $100,000 to $150,000 compared with assessment at the real rate.
Understanding that single mechanism explains most of the gap between what buyers expect to borrow and what they are offered.
The 10-minute version
- You are assessed at your rate plus 3%. Model your own repayments at that assessment rate, not the advertised one — because if rates rise, that is your reality.
- Pre-approval is not approval. It is conditional, it expires (commonly around three months), and it does not guarantee the lender will accept the specific property.
- Budget the costs beyond the deposit. Stamp duty, LMI, conveyancing, inspections, insurance and moving routinely add tens of thousands.
How lenders actually assess you
Serviceability is the core test: income, minus living expenses, minus existing commitments, against the repayment calculated at the buffered assessment rate.
Things that reduce your borrowing capacity more than people expect:
- Credit card limits, assessed on the limit rather than the balance. An unused $15,000 card reduces capacity meaningfully. Close what you do not need
- Buy-now-pay-later accounts and personal loans
- HECS-HELP repayments, which count as a commitment
- Dependents
- Casual or variable income, often discounted or requiring longer history
- Living expense benchmarks — lenders apply a floor even if you genuinely spend less
Deposit and LMI. Under a 20% deposit, most lenders charge lenders mortgage insurance, which can run to many thousands and is usually capitalised onto the loan. Various government schemes and guarantees can reduce or remove it for eligible first home buyers — worth checking eligibility before assuming you need 20%.
Pre-approval, and its trap
Pre-approval means a lender has assessed you and indicated a likely amount, subject to conditions. It is genuinely useful — it tells you your range and it makes an offer credible.
What it is not:
- It is not final approval. The lender still values the property and can decline it
- It expires, commonly around three months. If rates or policy change in that window, your number changes with it
- It is not a guarantee against a valuation shortfall. If the bank values the property below what you agreed to pay, you must cover the difference
- Multiple applications leave credit enquiries. Shop rates through a broker or by asking for indicative assessments rather than lodging repeatedly
Refresh it before you bid, so your ceiling reflects the current buffered assessment rate rather than one from three months ago.
The costs beyond the deposit
The number that catches first home buyers.
| Cost | Typical |
|---|---|
| Stamp duty | Varies enormously by state and value; first home buyer concessions and exemptions exist and are worth checking |
| Lenders mortgage insurance | Thousands, if deposit under 20% |
| Conveyancing or solicitor | $1,000–2,500 |
| Building and pest inspection | $400–800 — and non-negotiable |
| Loan application and valuation fees | $0–800 |
| Transfer and registration fees | Few hundred to low thousands |
| Council and water adjustments | Varies |
| Home insurance | Required from exchange or settlement, depending on state |
| Moving and immediate repairs | $500–3,000 |
Add a buffer beyond all of it. Something always needs fixing in the first month.
Before you sign anything
- Building and pest inspection, always, on any established property. It is the cheapest risk reduction available
- Read the contract with a conveyancer before signing. In some states you have a cooling-off period; in others, at auction, you have none at all
- Check the strata records for an apartment: the sinking fund balance, minutes for defect discussions, and any special levies. This is where the expensive surprises live
- Understand the deposit and cooling-off rules in your state, because they differ substantially
- Get finance approval on the specific property before you are unconditional, unless you can complete without it
Settlement week
The part nobody hands you a checklist for.
- ☐ Final loan documents signed and returned, well before the date
- ☐ Funds for settlement in the right account, cleared — not in transit
- ☐ Home insurance in place, effective from the required date
- ☐ Final inspection of the property, in the week before
- ☐ Utilities connected in your name from settlement day
- ☐ Council and water rates adjustments confirmed by the conveyancer
- ☐ Keys collection arranged
- ☐ Mail redirection
- ☐ Address updated: licence, bank, employer, electoral roll, insurance
- ☐ First repayment date noted and the direct debit confirmed
After settlement
- Set the repayment as an automatic transfer on the day after payday.
- Build the buffer. Aim for a few months of repayments in an offset or savings account. This is what turns a rate rise or a lost shift from a crisis into an inconvenience.
- Model your own stress test. Repayments at plus 3%. If that number is unmanageable, you have borrowed to your limit rather than to your comfort.
- If you get into difficulty, ring the bank’s hardship team early. Options exist — reduced payments, interest-only for a term, a pause — and they are far broader before a missed payment. See How to Survive a Cost-of-Living Squeeze.
What actually goes wrong
Borrowing the maximum offered, which is a limit rather than a recommendation.
Not modelling the buffered rate. The assessment rate exists because rates move.
Credit card limits left open, reducing capacity for no benefit.
Pre-approval treated as approval, then a valuation shortfall.
Skipping the building and pest inspection to win a competitive purchase.
Strata records not read, and a special levy arrives.
No buffer after settlement, so the first unexpected bill goes on a credit card.
Insurance not in place by the required date.
Thresholds
| Situation | The rule |
|---|---|
| Assessing affordability | Model repayments at your rate plus 3% |
| Before bidding | Pre-approval refreshed, and it is conditional |
| Established property | Building and pest inspection, always |
| Apartment | Strata records, sinking fund and minutes read |
| Contract | Reviewed by a conveyancer before signing |
| Credit cards | Close unused limits before applying |
| After settlement | Automatic repayment on payday, buffer of a few months |
| Any difficulty | Ring the hardship team before missing a payment |
What it costs
| Tier | Spend | What it buys |
|---|---|---|
| Free | $0 | Moneysmart calculators, checking first home buyer concessions and guarantee schemes, closing unused credit limits, modelling the buffered rate |
| Essential | ~$1,500–3,300 | Conveyancer plus building and pest inspection. The two you never skip |
| Often free | $0 | A mortgage broker, typically lender-paid. Ask how they are remunerated |
| Budget for | Tens of thousands | Stamp duty, LMI, fees and moving, on top of the deposit |
Frequently asked questions
How much can I actually borrow?
Less than the advertised rate suggests, because lenders assess you at your interest rate plus a 3% serviceability buffer set by APRA. On a typical household income that buffer reduces capacity by roughly $100,000 to $150,000.
Is pre-approval the same as approval?
No. Pre-approval is conditional, commonly expires after about three months, and does not commit the lender to the specific property — a valuation shortfall can still leave you short. Refresh it before bidding.
What costs are there beyond the deposit?
Stamp duty, lenders mortgage insurance if your deposit is under 20%, conveyancing, building and pest inspection, loan and transfer fees, rates adjustments, home insurance and moving. Together they routinely run to tens of thousands.
Do credit cards affect my borrowing capacity?
Yes, and they are assessed on the limit rather than the balance. An unused card with a high limit reduces what you can borrow, so close what you do not need before applying.
Should I get a building and pest inspection?
Always, on an established property. At a few hundred dollars it is the cheapest risk reduction in the entire purchase, and skipping it to win a competitive sale is how people inherit structural problems.
What if I cannot make repayments later?
Ring the lender’s hardship team before missing a payment. Options include reduced payments, a period of interest-only, or a pause — and the range is much wider before a default than after.