Can You Afford That House? How to Stress-Test Your Budget Before Buying
Buying a home is one of the biggest financial decisions you’ll ever make. It’s exciting, but it’s also a long-term commitment that needs careful planning, especially when it comes to affordability. Many buyers base their decisions on what the bank will lend them, but that’s only half the story.
To make a smart, sustainable purchase, you need to stress-test your budget. That means looking beyond today’s mortgage rate and asking: “Can I still afford this home if things change?” In a world of fluctuating interest rates, inflation pressures, and life curveballs, buying within your true comfort zone, not your maximum borrowing limit, is crucial.
Here’s how to do it.
1. Understand What the Bank Approves and What You Can Actually Afford
Lenders calculate how much they’ll lend you based on your income, debts, and living expenses, and they build in a buffer to test whether you could handle higher rates. But just because you can borrow $800,000 doesn’t mean you should.
Your personal comfort level is just as important. Ask yourself:
- Could I still afford this mortgage if interest rates increase by 2%?
- What happens if one of us loses income or we start a family?
- Will I still be able to afford lifestyle costs like travel, schooling, or saving?
Owning a home should give you security, not leave you stretched every month.
2. Stress-Test Using Higher Interest Rates
The Reserve Bank of New Zealand has raised the Official Cash Rate significantly in recent years, and while many experts expect cuts in the future, rates can increase again, quickly.
To stress-test your budget, run the numbers on your potential mortgage using a higher interest rate, typically 2–3% above today’s rate. If you’re looking at a 6.5% mortgage, see what your repayments would be at 8.5%.
You can use free mortgage calculators online or work with a mortgage adviser who can give you a clear picture.
Example:
- Loan amount: $700,000
- Interest rate: 6.5% = ~$1,935 per fortnight
- At 8.5% = ~$2,360 per fortnight
That’s a difference of over $11,000 per year. Could you afford that increase?
3. Review Your Spending and Lifestyle
Owning a home brings new expenses, such as rates, insurance and maintenance, so make sure your budget reflects the real cost of ownership.
Stress-testing your budget should include:
- Emergency savings buffer (ideally 3–6 months of expenses)
- A line item for property repairs and maintenance
- Life or income protection insurance in case the unexpected happens
It’s also smart to build in some breathing room for your lifestyle. Life shouldn’t stop just because you bought a home.
4. Plan for Life Changes
Your financial life today might look very different in five years. Think ahead:
- Are you planning to have kids?
- Could your income drop if you go part-time, change careers, or start a business?
- Do you plan to travel, study, or take a break from work?
Buying a home that gives you flexibility through life’s changes will serve you better than maxing out your loan potential from day one.
5. Work With a Mortgage Adviser
A mortgage adviser can help you run stress-tested scenarios, find a structure that suits your lifestyle, and explore options like offset accounts or split loan types. The right advice now can help you avoid regret later.
They’ll also keep you informed about market trends, interest rate forecasts, and lending changes — helping you make a confident, future-proof decision.
Final Thoughts
Don’t let the excitement of buying a home blind you to the financial realities. Stress-testing your mortgage is a smart, empowering step that ensures your dream home won’t become a financial nightmare.
Buy with confidence, not pressure. Know your numbers, build in a buffer, and choose a property that fits your life, not just your lender’s limit.