Take a household with $6,000 of net monthly income after tax, and $2,800 a month going on living costs and existing debt repayments. That leaves a surplus of $3,200 a month to put towards a mortgage. Banks do not test this at the advertised rate. They stress it at a higher test rate, here 8.5 percent, to make sure you could cope if rates rose.
Working backwards from a $3,200 monthly payment over a 30-year term at 8.5 percent, the maximum loan comes to about $416,172. If you borrow up to 80 percent of the purchase price, that loan supports a property of around $520,215, which means you would need a 20 percent deposit of about $104,043. Borrow above 80 percent and you can buy more, but you will usually pay a low-equity premium on the rate.
How it is calculated
The calculator starts with your monthly surplus, which is net income minus living expenses and existing debt repayments. It then asks how large a loan that surplus could repay over your chosen term if the interest rate were the bank test rate rather than today’s advertised rate. This is the present-value of an annuity calculation, the reverse of working out a repayment from a known loan. The test rate, often 8.5 to 9 percent, is deliberately higher than market rates so that the lending is safe if rates climb. To convert the loan into a purchase price the tool assumes 80 percent lending, so it divides the loan by 0.8 and shows the 20 percent deposit that the other slice represents. Real bank assessments also scale back some income types and apply credit-card limits, so treat this as a guide.
Frequently asked questions
How much can I borrow in NZ?
Banks assess your surplus after living expenses and existing debt, then test whether you can service the loan at a higher "test" interest rate (often 8-9%) for safety. Most owner-occupiers also need a 20% deposit to avoid low-equity premiums, though some lending above 80% LVR is allowed.
What is the bank test rate and why does it matter?
New Zealand banks stress-test mortgage applications at a rate above the actual lending rate, typically 8-9%, to confirm you could keep repaying if market rates rose sharply. The Reserve Bank of New Zealand sets minimum standards for this serviceability buffer. Because the test rate is higher than the advertised rate, the maximum loan you qualify for is lower than a simple calculation at today rates would suggest.
How does KiwiSaver help with a first home purchase?
If you have been in KiwiSaver for at least three years you may be able to withdraw most of your balance for a first home, leaving a minimum $1,000 in the account. A separate First Home Grant from Kainga Ora can add up to $10,000 for new builds or $5,000 for existing properties per person, subject to income and house-price caps set by the government. Both amounts count toward your deposit. Check current caps on the Kainga Ora website as they are reviewed periodically.
What income does a bank include in the affordability assessment?
Most New Zealand banks count base salary or wages at 100%, but treat overtime, commissions, and rental income at a shaded rate, often 75-80%, because those income streams are seen as less certain. Self-employed borrowers typically need two years of financial statements and banks use the lower of the two years. Working for Families tax credits from IRD are generally included at face value. Bonus income is usually excluded unless it is contractually guaranteed.