What Does a $2.5 Million Home Really Cost?

A $2.5 million home in Auckland might come with the right postcode, a beautiful kitchen and enough room to finally stop pretending the garage is a storage unit.

But the price on the listing is only the entry ticket.

What does it actually take to buy a $2.5 million home – and, more importantly, what does it cost to keep owning it once the keys are yours?

Using a simple example of a 20% deposit, a $2 million mortgage, a 30-year loan term and an interest rate of 4.65%, let's break down the numbers.

First, You'll Need $500,000

A 20% deposit on a $2.5 million property is:

• $500,000 deposit
• $2,000,000 mortgage

That's a substantial starting point.

For some buyers, the deposit will come from years of saving. For others, it may be equity built up in an existing property, or a combination of both.

But having the deposit doesn't necessarily mean you're ready to spend every available dollar on the purchase.

There are legal fees, due diligence and other purchasing costs to consider, and you'll want some money left behind for the unexpected.

Because houses have an uncanny ability to discover something expensive needs attention shortly after you've bought them.

The more important number, however, is what happens to your household budget once that $2 million mortgage begins.

A $2 Million Mortgage: Around $2,380 a Week

At an illustrative interest rate of 4.65% over 30 years, principal-and-interest repayments on a $2 million mortgage would be approximately:

$10,313 per month

or

$2,380 per week

That's where affordability becomes much more tangible.

Forget the $2.5 million purchase price for a moment. Could your household comfortably allocate around $2,380 every week to the mortgage and still live the way you want to live?

There are still groceries, power, transport, childcare, insurance, holidays, savings and everything else competing for the remaining income.

And remember, 4.65% isn't necessarily your interest rate for the next 30 years.

Most New Zealand borrowers fix for considerably shorter periods, which means repayments can change as interest rates move.

So when you're considering a mortgage of this size, don't just ask:

Can we afford it today?

Ask:

What happens if rates go up?

That's a much more useful question.

What Income Could You Need?

Here's another way to put a $2 million mortgage into perspective.

At a debt-to-income ratio of six times gross household income, you'd be looking at approximately:

$333,000 in combined annual household income.

But this is where mortgage calculators can give people false confidence.

Earning $333,000 doesn't automatically mean a bank will lend you $2 million.

A lender wants to understand what else your income needs to support.

That includes existing mortgages, credit cards, vehicle finance, personal loans, dependants, household expenses and other financial commitments.

Two households can earn exactly the same amount and have completely different borrowing capacities.

A couple earning $333,000 with minimal debt and relatively low expenses is a very different proposition from a household earning the same amount with three children, two car loans, significant credit-card limits and an enthusiastic relationship with Uber Eats.

Income tells the bank what comes in. Your overall financial position tells them how much can safely go out.

That's why understanding your borrowing position before seriously looking at properties can save a lot of time – and potentially a lot of disappointment.

Then There's the Cost of Actually Owning It

You've paid your deposit. The bank has approved the mortgage. Settlement day arrives.

Congratulations.

Now the house starts sending you bills.

On top of approximately $10,313 per month in mortgage repayments, you'll need to budget for the ongoing costs of owning the property.

For illustration, house insurance might cost $2,000+ per year, depending on the property, location, insurer and level of cover.

Then there's maintenance.

A common rule of thumb is to allow around 0.5% of the property's value each year for maintenance. On a $2.5 million property, that's approximately:

$12,500 per year

or

$1,042 per month

You won't necessarily spend $1,042 every month. You might spend very little for several months and then discover the house would quite like $8,000 all at once.

That's why having money set aside matters.

Add our illustrative mortgage, insurance and maintenance figures together and you're already approaching:

$11,500 per month.

And we're still not finished.

There are council rates, contents insurance, utilities and potentially other property-specific costs to consider.

So the real cost of owning a $2.5 million property can look quite different from the number you first saw on the listing.

Buying It and Affording It Are Two Different Things

This is probably the most important part of the exercise.

The maximum amount a bank is prepared to lend you and the amount you're comfortable borrowing don't have to be the same number.

A lender's approval tells you what may be possible.

Your household budget tells you whether it's sensible for you.

Would you still have enough room to save?

Could you absorb an unexpected $10,000 expense?

What happens if interest rates rise?

Can you still travel, eat out, support your children or do the things that are important to you?

If buying the house means spending the next 30 years admiring your beautiful kitchen because you can no longer afford to leave it, the numbers probably deserve another look.

So, What Does a $2.5 Million Home Really Cost?

Using our example:

• Purchase price: $2,500,000
• 20% deposit: $500,000
• Mortgage: $2,000,000
• Repayments at 4.65%: approximately $10,313/month
• Indicative household income at 6× DTI: approximately $333,000/year
• Insurance: approximately $2,000+/year
• Maintenance allowance: approximately $12,500/year
• Mortgage + indicative insurance + maintenance: approximately $11,500/month, before rates and other household/property costs.

That's the number worth thinking about.

Because when you're considering a property at this level, the question isn't simply:

“Can I buy a $2.5 million home?”

It's:

“Can I comfortably own one?”

Watch Mils Muliaina, former All Black and qualified financial adviser at The Mortgage Hub, break down what buying and owning a $2.5 million Auckland home could actually look like.

Considering a property and want to understand what the numbers mean for you? Send The Mortgage Hub a message. We can work through your deposit, borrowing position and repayments with you — our advice is free.