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Stress-test your budget

How do you stress-test your buying budget against rate rises?

Reviewed by a licensed conveyancer

Reviewed by

Cordell Smith

Last updated

July 24, 2026

Stress-testing your budget is checking whether you could still afford your repayments if interest rates rose above today's level. Work out your repayments at a rate 2-3% higher; if the number feels uncomfortable, borrow less. Lenders apply their own serviceability buffer, so do your own too.

In detail

Stress-test your budget against rate rises

APRA's 3 percentage point serviceability buffer is the rule lenders use: the bank checks you could meet repayments if your rate jumped 3% above the actual loan rate. APRA reviewed it in July 2025 and kept it at 3%.

The RBA lifted the cash rate to 4.35% in May 2026, the third hike of the year. Today's rate isn't the rate you'll pay in three years. Do your own stress test: take your likely loan rate, add 2% and then 3%, recalculate the monthly repayment. At +3%, are you still comfortable, or eating two-minute noodles? If it's the noodles, drop your max.

Visual: Monthly repayments by loan size and interest rate

Loan5%6% (today)7%8% (stress)
$500,000$2,684$2,998$3,327$3,669
$600,000$3,221$3,597$3,992$4,402
$700,000$3,758$4,197$4,657$5,136
$800,000$4,295$4,796$5,322$5,870
A 2% rise on $600K
+$805 / mo. Jumping from 6% to 8% on a $600K loan costs ~$9,660/year more.
APRA's buffer
Lenders test you at your rate + 3%. Do the same maths yourself. The bank's "yes" doesn't mean comfortable.
P&I, 30-year term. Use Moneysmart's calculator for your exact numbers.

In practice

Stress-testing your budget in practice

In our experience, buyers often treat a lender's approval as confirmation the loan is comfortable — when all it really confirms is that the numbers work on paper today. We regularly see people borrow to the top of what they're offered, then feel the pressure the moment rates move.

A common pattern is anchoring to the current repayment. Buyers look at what the loan costs at today's rate and stop there, without asking what happens if the rate is higher in a few years. That's the gap the lender's own serviceability buffer is designed to cover — testing you at your rate plus 3%.

What we advise is to run that same test yourself before you commit: take your likely rate, add 2% and then 3%, and recalculate the repayment. If the higher figure feels tight, borrow less rather than hoping rates stay put. The takeaway: the bank's "yes" isn't the same as comfortable — stress-test the repayment yourself and set your ceiling from there.

Related explainers

Sticking to your budget at auction

Sticking to your budget is holding firm to a maximum price you set before you start looking, rather than lifting it in the heat of the moment. Decide a hard ceiling, tell someone you trust, and at auction fix your walk-away price in advance so bidding pressure can't push you past it.

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Budget for all the costs, not just the price

Budgeting for all the buying costs is planning for every expense beyond the purchase price, not just the property itself. Allow for stamp duty, conveyancing, inspections, loan and registration fees, lender's mortgage insurance if your deposit is under 20%, and moving costs.

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What if you can't find anything in budget

Not finding anything in your budget is a sign your target price and the current market don't yet match. The honest options are to widen your search area, adjust the property type, save longer for a bigger deposit, or wait — not quietly lift your ceiling to make one property work.

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The 30% rule: does it still apply?

The 30% rule is a rough guide that says your housing costs should stay under 30% of your gross income. Treat it as a sanity check rather than a target — your real ceiling depends on your other commitments, rate buffers and lifestyle.

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