Want To Afford Your First Home Mortgage? Make Sure You Have a Monthly Surplus

Let's explore everything you need to know about maintaining a monthly surplus to afford a mortgage comfortably.

What is a Monthly Surplus, and Why is it Important?

A monthly surplus refers to the amount of money left over each month after you've paid all your living expenses and debts. Essentially, it's your financial breathing room - the money that can be used for savings, investing, or extra debt repayments. Lenders pay close attention to this figure because it indicates your ability to handle a mortgage comfortably, especially when interest rates rise or unexpected expenses occur.

Having a consistent monthly surplus shows lenders you're financially disciplined, manage your money effectively, and can comfortably meet mortgage repayments without compromising your lifestyle.

How Much Surplus Do You Need for a Mortgage?

There isn't a one-size-fits-all answer, as the ideal surplus depends on several factors, including the size of your mortgage, your lifestyle expenses, and your financial goals. However, a general rule of thumb is the larger your surplus, the stronger your mortgage application.

Lenders typically calculate your ability to repay a mortgage using something called a debt-to-income ratio (DTI). In New Zealand, many lenders prefer that no more than 30–40% of your gross income goes toward mortgage repayments. The lower your DTI, the greater your financial flexibility, and a healthy surplus significantly improves your DTI.

How to Calculate Your Monthly Surplus

1. Calculate Your Total Monthly Income

Include all sources: salary, overtime, bonuses, or any other regular income.

2. List Your Regular Monthly Expenses

Your regular monthly expenses typically include housing costs such as rent, utilities like electricity, water and internet, food and groceries, and transportation costs including car maintenance, petrol and public transport fares. You should also account for insurance premiums covering health, life and car insurance, as well as any short-term debt repayments like car loans, personal loans and minimum credit card payments. Don't forget childcare or education expenses, entertainment and leisure spending, and any other regular outgoings you have each month.

3. Subtract Your Expenses from Your Income

This calculation provides a clear picture of your financial position and helps you understand how much mortgage repayment you can comfortably handle.

Learn more about how the Banks calculate home loan affordability

Improving Your Monthly Surplus

If your surplus isn't as high as you'd like, don't panic - there are practical ways to increase it:

Reduce Unnecessary Expenses

Review your monthly spending carefully and identify areas to cut back. Consider reducing subscriptions, dining out less frequently, or renegotiating utility bills.

Consolidate Debts

If you have multiple high-interest debts, consolidating them into a single, lower-interest loan can significantly reduce your monthly repayments, freeing up more surplus.

Boost Your Income

Look for opportunities to increase your income, such as negotiating a raise, taking on freelance work, or renting out a spare room.

Demonstrating a Consistent Surplus to Lenders

Having a surplus for just one or two months isn't enough. Lenders look for consistency over several months, usually 3-6 months, to ensure that your financial habits are stable and reliable.

To demonstrate consistency, keep track of your expenses rigorously and build savings regularly while avoiding unnecessary debts. Maintain a clear financial record with minimal overdrafts or missed payments. Clear evidence of a strong monthly surplus over this period helps improve your chances of obtaining an approval.

The Long-Term Benefits of Maintaining a Monthly Surplus

Maintaining a healthy surplus isn't just about getting approved for a mortgage; it's about long-term financial security. A consistent surplus ensures you can comfortably handle interest rate increases, manage unforeseen financial setbacks, and invest in home improvements or additional property investments down the track.

Start Preparing Early

The best time to start building a surplus is before you even apply for a mortgage. Early preparation gives you more time to improve your financial standing, reduce debts, and increase savings, ultimately positioning you as an ideal borrower.

Seek Professional Advice

Navigating your financial preparation for a mortgage can feel overwhelming. Seeking guidance from a mortgage adviser can be invaluable. Advisers can assess your financial position, offer tailored advice, and help you implement strategies to maximise your surplus.

Take Control of Your Mortgage Journey

Achieving the dream of homeownership starts with a solid financial foundation. By ensuring you have a consistent monthly surplus, you'll confidently handle your mortgage and enjoy homeownership's rewards without financial stress.

Start today - review your finances, build your surplus, and take control of your mortgage journey with confidence.