Mortgage stress test | Buying your next home - NAB
What is a mortgage stress test?
A mortgage stress test is a simple way to check whether your budget can still work if something changes after you buy your next home.
That might include:
- higher home loan repayments
- changes to your income
- higher living costs
- one-off or unexpected expenses
- a temporary period of paying costs on two properties.
In short, it means asking: would my budget still hold up if things became more expensive or more complicated than expected?
Why it matters for buying your next home
Stress testing can be especially useful when you’re buying your next home.
That’s because the move often comes with more moving parts. You may be taking on a larger loan, buying before you sell, or moving into a property with different running costs. In some cases, there may be a short period where you’re managing costs linked to both homes at once.
These shifts can affect your day-to-day budget, which is why many people choose to run a simple home loan stress test before they commit. This doesn’t predict what will happen. It simply helps you explore how flexible your budget may be.
Why lenders stress test too
When a lender assesses a home loan, they also look at whether repayments may still be manageable under different assumptions. This is part of checking affordability and serviceability.
Your own budget review is not the same as a lender assessment, but the idea is similar. Both are designed to test how your finances may hold up if circumstances change.
That’s why it can help to do your own simple mortgage stress test before buying your next home.
Start with your baseline budget
Before you test different scenarios, it helps to understand your budget as it is now.
Start with the money coming in and the money going out each month. This gives you a baseline to compare against.
You may want to include:
- your current mortgage or rent
- the possible repayments on your new home loan
- regular living costs like groceries, transport, utilities and insurance
- any other debts or regular commitments
- how much you usually save
- upfront costs linked to moving, legal work, government charges and setting up the new home.
Some buying costs, such as stamp duty where it applies, can vary depending on the property, location and your circumstances. That’s why it can help to treat them as part of the total cost of moving, rather than looking only at the loan itself.
Test different stress scenarios
One of the most useful parts of a mortgage stress test is running through a few “what if” situations. These are examples to illustrate how different scenarios can affect a budget.
Scenario 1: If interest rates rose
Imagine you’re looking at a $700,000 home loan over 30 years.
At different interest rates, your monthly repayments (principal and interest) could look like this:
- 6.0% p.a. about $4,197 a month
- 6.5% p.a. about $4,424 a month
- 7.0% p.a. about $4,657 a month
That means:
- a 0.5% increase could add around $227 a month
- a 1.0% increase could add around $460 a month
While these changes may seem gradual, they can still affect how much room is left in your budget for everyday spending, saving and unexpected costs.
Scenario 2: If you had to manage two home loans for a while
If you buy before selling, there may be a short period where two home loans overlap.
For example, imagine:
- current home loan: $450,000 over 25 years at 6.0% p.a. equates to about $2,899 a month (principal and interest)
- new home loan: $700,000 over 30 years at 6.0% p.a. equates to about $4,197 a month (principal and interest)
That would bring total repayments to around $7,100 a month during the overlap period, before adding everyday living costs or other property expenses.
In practice, the timing and loan setup can vary, but this kind of example can help show how even a short overlap between two properties may affect your monthly cash flow.
Scenario: 3: If extra costs come up
Stress testing isn’t only about your home loan. It can also help to think about the extra costs that may come with moving into a new property.
For example, you might face:
- moving costs of around $2,000–$3,500 depending on distance and services
- legal or conveyancing costs of about $1,500–$2,500
- initial repairs, cleaning or setup costs of around $3,000–$7,000
That could add up to roughly $6,500 to over $12,000 in upfront costs.
There may also be ongoing costs that differ in your new home. For example:
- strata or body corporate fees might be around $900–$1,500 per quarter (or roughly $300–$500 a month)
- utilities and insurance costs may also change depending on the size, age and location of the property
Looking at a range like this can help you see how costs beyond your repayments may affect your overall budget once you move.
Think about how much room your budget has
After looking at a few scenarios, it can help to step back and consider how your budget feels overall.
For example, you might reflect on:
- how much space is left after covering essential costs
- whether there’s flexibility if repayments or expenses increase
- how temporary changes, like overlapping costs, might feel in practice
- whether the budget still supports your day-to-day lifestyle.
Some people also choose to think about having a buffer for unplanned costs. The amount will vary, but the idea is having some flexibility if needed.
Depending on the loan, features like an offset account or redraw facility may also offer flexibility in how repayments are managed.
Tools and support that can help
If you’d like to explore different scenarios further, there are tools that can help you compare options more clearly:
You can also talk to a home lending specialist to understand how different options may affect your repayments over time.
Checklist: questions to ask before you commit
Before you move ahead, it may help to check:
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.