How Much Can I Borrow? Mortgage Calculation Made Easy

"How much can I borrow?" Mortgage payments are a huge part of our regular financial commitments, and most lenders have strict limits on measures such as the percentage of your income that you can spend making your mortgage repayments, the size of your downpayment, and the amount of other debt you are carrying.

You can answer the question "How much can I borrow?" in at least three different ways.

The overall impact of housing expenses is a significant proportion of living expenses. For most people, unless their home is paid off, housing is their largest single expense. If you ask a financial planner "How much can I borrow?" for mortgage purposes in particular, the first question will always be "How much do you earn?"

Closely following will be the question "What other debts do you have?"

Repayments on other debts, such as cars, credit cards and personal loans, can eat into the funds you would otherwise use to pay off your mortgage. When you are asking "How much can I borrow for a mortgage?", you are really asking "How much more can I borrow on top of my current debt?"

Thirdly, your financial planner will be interested in your savings history, and how much of a downpayment you can make.

How Much Can I Borrow? Mortgage Payments As A Percentage Of Income

If you know how much you earn, it is easy to answer the question "How much can I borrow?" Mortgage payments generally need to be limited to 28% of your income, or in other words, 28c of each dollar you earn.

Therefore, it is easy to answer the vital question, "How much can I borrow?" Mortgage payments must be kept below the important limit of 28c in the dollar, and as you have no control over the rate of interest, you can only accomplish this by adjusting the size of the mortgage itself.

Use this online mortgage calculator to see what your monthly mortgage payment will be, and whether you can afford a large enough mortgage to buy your dream home.

How Much Can I Borrow? Mortgage Payments And Other Debts

The question "How much can I borrow for a mortgage?" can't be answered in isolation. Your other debts will impact your ability to make your mortgage payments.

Most lenders like you to keep your total repayments under 36% of your income, or 36c in the dollar. This means that if your current debt repayments are more than 8%, or 8c in the dollar of your income, then those obligations are going to reduce the amount your lender is willing to allow you to take on in mortgage repayments.

How Much Can I Borrow? Mortgage Downpayments

In these uncertain times, it is even more important to lenders that you have a sizeable downpayment when you apply for your mortgage.

While it has been possible in the past to find mortgages with a downpayment of only 3%, these days you are better to budget for at least 5%.

A downpayment of 5% means that the mortgage will be 95%, or 19 times the size of your downpayment. Take the amount of your downpayment cash, multiply by 19, and you have another way to answer the question "How much can I borrow?" Mortgage lenders will consider the size of your downpayment just as much as the size of your income in determining what they will lend you.

Use this handy online mortgage calculator to figure out how much you can borrow.