The Mortgage “Sleep Test”: Do you pass?

The word ‘debt’ can conjure up some negative feelings, like sleepless nights and loan sharks. Of course there’s also what is known as ‘good debt’ – debt which is an investment, with the intention it will grow in value or generate income. Generally, home loans and student loans are considered ‘good debt’ for this reason.

Average household debt levels in New Zealand (comprising mortgages, consumer loans such as credit cards and personal loans, and student loans) have grown tenfold in 30 years. However the average income has grown less than three times.

While it can often make sense to take on smart debt, it’s also important to ensure we’re not getting in over our heads. So, how much is too much? The definition of an acceptable sized home loan is ever changing. While the media often uses debt to income ratio as an indicator to suggest appropriate levels of debt, we believe there is a whole range of factors to consider when deciding what’s best for you.

How much mortgage is too much?Here’s a few things to consider:

Interest Rates

If interest rates rose to 7% would you be able to live comfortably? How about if interest rates were 8.5%? Lenders often use their own ‘mortgage stress test’ which calculates your ability to make repayments should interest rates rise. But it can be a good idea to do your own checks, based on what you determine to be affordable, and your individual spending habits.

Future Plans

Plans like travelling, starting a business or having a baby can have a big impact on your finances. Does your current mortgage budget allow for any of these? Having the right mortgage structure in place can allow flexibility for some future changes – including going interest-only, offsetting and putting a proportion on floating or revolving credit.


When do you plan to retire and how does this fit into your mortgage plan? Recent figures show that 28 percent of mortgages in New Zealand are held by those 55 years and older with an average mortgage of $321,000. Eight percent of mortgages are held by those 65 years and older, with an average amount owed around $232,000. It is important to think about when you need to be debt free by, and adjust your repayments accordingly.

Average NZ Mortgage Debt

*top 10 regions with the most mortgages

<5555+% of Debt (55+)
North Shore$542,571$381,50425%
Lower Hutt$328,039$236,50721%

Savings and Assets

Do you have savings which could tide you over if anything happened and you weren’t able to earn an income? How about liquid assets which could be freed up for cash?

How long would they last, and how much of a financial set-back would this be for your long-term plans?

Back up plans

Savings and other assets are all great to have alongside property, but using them as a back-up plan usually offers only a short-term solution. It would also have huge potential for financial setbacks. Income protection, health and life insurance protect you against the financial setbacks of illness, disability and death.

Taking all these into consideration, deciding how much mortgage is too much comes down to the sleep test. Can you sleep at night or will you worry too much? If you’re wanting to get on the path to a stress-less mortgage, an Apex mortgage adviser can steer you in the right direction. We’ll be able to help structure your mortgage to fit in with life changes, help you pay off your mortgage faster, and ensure you’re well protected for the future. Get in touch.


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