What You Can Borrow vs What You Should Borrow: A Smarter Approach to Home Loans

When it comes to applying for a home loan, it’s easy to be swayed by the number the bank puts in front of you. But just because a lender says you can borrow a certain amount doesn’t mean you should. At Paris Financial, we work with clients every day who are navigating this decision, and we always recommend looking beyond the pre-approval figure to assess your real-world financial comfort.

A responsible borrowing decision isn’t just about securing a loan, it’s about protecting your lifestyle, preserving your financial goals, and preparing for the future.

Understanding Your Borrowing Capacity 

Your borrowing capacity refers to the maximum amount a lender is willing to offer you. This is based on a combination of personal financial factors, including:

• Your gross income – all sources of regular earnings
• Monthly expenses – bills, insurance, groceries, transport, etc.
• Existing debts – credit cards, personal loans, car leases
• Deposit amount – the larger your deposit, the less you’ll need to borrow
• Interest rate and loan type – whether fixed or variable, interest-only or principal + interest
• Loan term – usually 25–30 years
• Estimated repayments – tested against potential rate rises

While these calculations help lenders understand your financial position, they don’t always reflect your personal circumstances or risk tolerance. For example, you might technically be able to afford a $900,000 loan, but only if you strip back all spending and have no room left for holidays, school fees, or unexpected costs.

What You Should Borrow Depends on Your Lifestyle 

Borrowing within your means gives you breathing room in your budget and flexibility for the future. A general rule is to avoid spending more than 30% of your gross monthly income on home loan repayments. Exceeding this limit can cause mortgage stress, which may result in financial strain or missed repayments down the track.

Here are two scenarios that illustrate the difference:

Scenario 1 – Borrowing to the Max

A dual-income household earning $160,000 combined is approved for a $900,000 loan. They take the full amount and buy a larger house but are left with no surplus cash for savings, school fees, or emergencies.

Scenario 2 – Borrowing Conservatively

The same couple opts to borrow $750,000 instead. Their monthly repayments are lower, leaving them with buffer room for travel, retirement savings, and lifestyle upgrades. If one partner changes jobs or takes leave, they can still comfortably manage.

Build a Budget Before You Borrow 

One of the most effective ways to determine your true borrowing limit is to build a household budget. Start by listing your income sources and subtracting all regular expenses, such as:

• Rent or existing mortgage
• Utility bills
• Council rates and body corporate fees
• Insurance premiums
• Groceries and medical expenses
• Childcare, tuition or school-related costs
• Transport, fuel, tolls
• Subscriptions, phone and internet
• Lifestyle spending: dining out, shopping, entertainment
• Credit card or personal loan repayments

Don’t forget irregular expenses like annual registration fees or car servicing. If you find this process challenging, a financial planner can help guide you through the numbers and establish a practical, sustainable budget.

Leave Room for the Unexpected 

Even the best-planned budgets need flexibility. When working out how much you should borrow, consider possible life changes:

• Are you planning to start a family and reduce income?
• Are interest rates forecast to rise?
• Will one partner be on unpaid leave or study break?
• Are you nearing retirement age and looking to downsize?
• Could an unexpected illness or redundancy impact your earnings?

Building a buffer into your monthly repayments can help absorb these changes. It also reduces financial stress and gives you more control over your money.

Plan for the Future – Not Just the Now 

Borrowing is not a one-off event, it’s a long-term commitment. Your mortgage repayments should support your broader financial goals, not hinder them.

• Want to invest in property or shares in the future? Make sure your home loan doesn’t consume your investing power.
• Planning for early retirement? Choose a repayment plan that aligns with your ideal retirement age.
• Want to keep travelling or funding children’s education? Don’t stretch yourself to the point of missing out on life’s important milestones.

Let a Broker Help You Make a Balanced Choice 

Many borrowers assume their lender or online calculator gives them the full picture, but the reality is far more nuanced. That’s why working with a trusted mortgage broker can help ensure your home loan structure fits your financial plan, not just the bank’s.

At Paris Financial, we work closely with individuals, families, and business owners to understand the bigger picture and guide them toward smarter borrowing decisions.

Need Home Loan Advice That Aligns With Your Future? 

If you’re unsure how much you should borrow, or whether your current structure still fits your goals, get in touch with our team. Our in-house Mortgage Broker can walk you through the numbers and help you borrow with confidence.

Call (03) 8393 1000 or visit parisfinancial.com.au to book a session.

Understanding what you can borrow vs what you should borrow is essential for long-term financial health.