What income do you need for a $1.5 million mortgage?

The short answer

A single applicant with no children needs about $310,000 a year. A couple with no children needs about $290,000 between them, and a couple with two children about $305,000.

The repayment is $8,984 a month, which is about $108,000 a year. You need roughly three times that in income, because lenders don't assess you at the rate you'll pay. They add three percentage points first.

So where does the $310,000 come from?

Start with the repayment. On $1.5 million over 30 years at 5.99%, principal and interest, you'd pay $8,984 a month. That's just under $108,000 a year.

Nearly every lender adds three percentage points to the rate before assessing your application, so it gets tested at 8.99%. At that rate the repayment is $12,059 a month.

That's $3,075 a month more than you'll actually pay, and $36,900 a year. The buffer is there so the loan still works if rates rise. It's also why the bank's answer comes out lower than the one you'd reach yourself, because you'd naturally start from the repayment you were quoted.

Your after-tax income has to cover that $12,059, plus your household's living expenses, with something left over. A single earner on $310,000 takes home $16,536 a month, so once the $12,059 is covered there's $4,477 left for everything else.

Why a couple needs less than a single buyer

A couple needs $290,000 between them, which is $20,000 less than a single buyer, even with two people's living costs to cover instead of one. The reason is tax, not anything to do with the loan.

A single earner on $310,000 pays $111,570 including the Medicare levy and takes home $198,430. Split $290,000 evenly and each partner earns $145,000, pays $37,620, and the household keeps $214,760.

So the couple earns $20,000 less and has $1,361 a month more to spend. The top slice of a single $310,000 income is taxed at 45%, while two incomes of $145,000 each stop $45,000 short of that bracket. Lenders work from take-home pay rather than gross, so the couple's tax saving counts towards what they can borrow.

What two children add

A couple with two children needs around $305,000, which is $15,000 more than the same couple without them. After tax, that $15,000 is about $762 a month.

It comes from the living expense benchmark. Every lender compares the expenses you declare against a benchmark figure for your household and income, then uses whichever is higher. The benchmark goes up with the number of people in the house, and two children add roughly $750 a month to it.

School fees are counted on top of the benchmark, as their own line. The rule of thumb I use is that every $1,000 a month of fees needs about $20,000 more gross income to cover it. So $60,000 a year across two children needs roughly $100,000 of income on its own, which dwarfs the $15,000 the children themselves add.

What you need upfront on a $1.875 million purchase

A $1.5 million loan usually means a purchase around $1.875 million. The deposit is $375,000, which is 20%, and at 20% there's no mortgage insurance to pay.

Stamp duty in New South Wales adds $84,412 at that price. Registration and conveyancing add a few thousand more.

• Deposit $375,000
• Stamp duty $84,412
• Transfer and mortgage registration $365
• Conveyancing and searches around $3,000
• Total cash required around $463,000

If 20% is more than you want to put in, the deposit can be smaller. Mortgage insurance then applies, unless you're in one of the professions that qualifies for a waiver.

What changes the income you need

Those figures assume a clean slate. No car loan, no credit card, no study debt, no other property. Each one changes the income you need by an amount you can work out in advance.

• Credit cards. Lenders assess the limit, not the balance, at around 3.8% a month. A $20,000 limit is treated as $760 a month of commitment, and covering that takes $15,000 to $17,000 of gross income depending on your bracket. It counts whether you've ever used the card or not, so closing one you don't need is the quickest way to lift what you can borrow.
• Car and personal loans. The repayment counts in full, even with a year left to run, because lenders assess your commitments as they stand today rather than as they'll be next year.
• Bonus and commission. Most lenders count 80% and want two years of history. On a package weighted towards bonus, this is often the largest single variable.
• Study debt. The compulsory repayment counts, and it's worth a conversation before you clear the balance. Paying it out uses deposit money to buy back borrowing power that some lenders would have given you anyway.

Why the answer changes from lender to lender

Treat these as benchmark figures rather than a verdict. The same income produces very different answers at different lenders.

The living expense benchmark, how bonus income gets treated, whether an almost-repaid study debt counts at all. Each of those varies, and on a loan this size the spread between the most and least generous lender is often more than $100,000 of borrowing power.

So one bank's answer isn't the market's answer. If the first one doesn't get you where you want to be, the useful next step is to see what another lender's policy does with the same income. That part I can do quickly.

Send me your income and any commitments and I'll run it across the panel. You can also try the borrowing power calculator first for a rough sense of the range.