Sizing Your Cash and Offset Buffer When You’re Geared

When you’re geared into property, a practical personal buffer is usually 6–12 months of stressed living costs plus all home and investment loan repayments, held in cash or a true offset account. If you’re highly geared, negatively geared, or self‑employed, aim closer to 12–18 months.

That’s on top of APRA’s 3% serviceability buffer the banks already use in their calculators – this is your own safety net, not theirs.

Size your buffer in months of stressed costs, not just a round number.

Step 1: Understand the difference – APRA buffer vs your buffer

APRA requires banks to test your repayments at least 3 percentage points above the actual rate.

That protects the lender, not your lifestyle.

Your personal buffer is:

Cash or true offset you can access quickly if rates rise, rent falls, or income drops.

Think of it as your ability to self‑insure short‑term shocks without panic selling or fire‑sale refinancing.

Across multiple articles – from Green Square equity rules to Dover Heights upgraders – a consistent pattern emerges:

• Model repayments at current rates +3%.
• Keep total home + investment repayments around 30–35% of after‑tax income.
• Hold 3–12 months of those stressed costs in cash or offset, depending on complexity and gearing (see points 10, 18, 19, 20 in the hub list).

When you’re geared, you simply push towards the upper end of that buffer range.

Step 2: How to calculate your “stressed” monthly cost

Use this simple formula:

1. Work out your stressed repayment.

   • Take today’s rate and add 3%.
   • Use any online calculator to get the repayment.

2. Add essential living costs.

   • Food, utilities, insurance, transport, kids’ basics.
   • Ignore holidays and upgrades.

3. Include all geared loans.

   • Home, investment properties, and any business loans secured against property.

Example (round numbers only):

• Home loan: $1.2m P&I at 5.8%, stressed at 8.8% → about $10,600/month.
• Two investment loans (interest‑only): combined $1.4m at 6.4%, stressed at 9.4% → about $10,950/month.
• Essential living (lean but realistic): $7,000/month.

Total stressed monthly cost = $28,550.

A 6‑month buffer = $171,300.
A 12‑month buffer = $342,600.

This is the kind of maths to run before you keep the old home as an investment or take on the next unit – see how we frame this for upgraders in /insights/keep-old-home-investment-upgrade-dover-heights.