Is Your Mortgage Too Big for You? Here’s How Big Yours Should Be

| October 28, 2014 | 0 Comments

When a mortgage lender approves you for a mortgage, they more often than not make it more expensive than you can afford. It goes without saying that you shouldn’t simply accept and go out to find the most expensive house you can get your hands on. This guide will help you work out whether your mortgage is too big for you:

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When taking your mortgage into account, you should also take into account the other payments you must make each month. Include your homeowners insurance in your calculations, as well as any other important payments you must make.

Some people like to be more reserved when buying a house. If this is you, then some say you won’t spend more than 35% of your income on a mortgage, insurance payments, and the tax on your property. Many say you can go up to 45%, but absolutely no more than that as a rule. Whether you’re buying the regular way or via residential property auctions close to Yardley, you should probably be on the more reserved side of things.

You must bear in mind that lenders want to approve borrowers for mortgages that are as big as possible. Some people wouldn’t call spending 35% of your income on those things listed above very reserved at all!

Another common viewpoint is that you should spend no more than 25% of your income after tax. This is thought to be best when in conjunction with a fixed rate mortgage at 15 years or less. You need to have cash for other things, such as furniture, entertainment, and transport. This is why it makes no sense for some people to spend anymore than 25%. If you negotiate the interest rates well, then you will more than likely be able to get a mortgage like this.

You could even work it out like this: making sure your mortgage payment is no more than one weeks pay for you, and that all of your other debts combined equal no more than 2 weeks. It really can be as simple as that!

If you try to live beyond your means, you’ll be stuck if something goes wrong. You may lose your job, through circumstances that you can’t help. You should have a backup plan for this, and other things that could possibly go wrong. You should always have a cash cushion behind you, no matter how secure you believe your job is. Save up 3-6 months at least, so that you can survive without a job for a while if needs be.

The important information to take away from this is that just because the bank approved you for it, doesn’t mean you should take out a mortgage that big or that you can afford it. They are two different things!

How much do you think you should spend on your mortgage each month? Is there a particular percentage you have in mind, and why? Leave a comment with your thoughts. Thanks for reading!

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Category: Home Loan

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