Feature Release: Affordability CalculatorBy Abodable September 01, 2022, Read time: 4 min
We’re excited to announce a little feature we’ve been working on recently - the affordability calculator! Many banks and real estate entities have mortgage calculators that go in-depth on calculating the ins and outs of buying a house. Still, they’re often very heavy and scary with many factors in the calculator that people don’t even know about!
We’re hoping to help educate people who are starting their home-buying journey. Sometimes people may be closer to purchasing than they realise, especially with some help from the Abodable rebate! Conversely, some prospective buyers may not be as close as they initially thought, and so the calculator serves as an initial educational indicator too.
You can find the calculator on every property page, in a secondary tab where the property information is displayed on a card:
So how does it work?
As a disclaimer, we have to say it’s intended to be as simple as possible, so you should always chat with a broker to get a more wholistic picture of where you sit. You can find out more about this here.
Think of the calculator as dipping your toe in the water, rather than bomb-diving in. It’s an indicator at where you sit when assessing when generally being able to afford a home. We make two calculations: initial deposit and monthly repayments. The benchmark for these are LMI (lenders mortgage insurance) payments, and 30% of your monthly income, respectively. If you’re sitting under 10% for your deposit, you’ll see a red number, meaning you’ll most likely need more money for your deposit. A purple means you’re over 10%, but under 20% so you’re still paying LMI, but it’s doable. Over 20% will put you in the green, a great position to be in!
For the calculation of the repayment, we use a well-known rule of thumb that your living expenses should not exceed 30% of your income. So if the repayments are over 40% of your total monthly income (include all wages and any other forms of regular income), you’ll see a red value. Under 40%, but over 30%, you’ll see purple; it’s still not ideal but can be affordable in some circumstances. 30% or under and you’ll see green - adhering to the rule of thumb for living expenses.
How are the calculations made?
As mentioned before, there are two calculations made:
- LMI, based on deposit
- Repayments, based on income
For the deposit, you can choose whether to use your Abodable rebate as part of your deposit by switching on the toggle on the calculator. This is added to the deposit amount you enter and is compared with 20% of the total property price since this is the LMI threshold. For example, if you’re buying a property priced at $500,000, 20% is $100,000. If you have $85,000 saved, and the Abodable rebate is $25,000, you can add them together to reach over the 20% threshold and not pay LMI!
For the monthly repayments, we calculate the repayments based on interest-only home loans. We take a set interest rate (currently 3.5%) of the total property price, then divide this by 12, to split it into monthly repayments. Mortgages are set up in various ways, some being fixed and/or variable interest over 20-30 years, which can change the monthly repayments. The repayments based on interest, while not precise, are a great starting estimate for people looking to buy their first or next home.
The calculator isn’t intended to be the be-all and end-all when figuring out if you’re in the position to buy a home, and should not be taken as financial advice. Instead, we see it as a good starting indicator of where you are and what your next steps could be in your home-buying journey.