How much should your Monthly Mortgage Payment be ?


Source: http://ascmortgage.net

An article on Yahoo has this interesting piece of information about how much should you spend monthly on your mortgage.

  • Mortgage lenders have tightened standards recently. But consumers still have the potential to get approved for a bigger home loan than they can afford.
  • A general rule of thumb is that no more than 28% of gross monthly income should go toward house-related debt (including taxes and insurance). Besides first mortgages, this includes home-equity loans, which allow people to take out a lump-sum loan against the house, and home-equity lines of credit, which allow people to borrow against the house over time, taking out money when needed.
  • A person who makes $5,000 a month before taxes, for example, wouldn’t want the monthly bill for house debt to exceed $1,400.
  • Note that the 28% guideline has a caveat: Monthly debt payments for everything — house, credit cards, car loans, student loans, etc. — shouldn’t be above 36% of gross monthly income. So if you spend 28% of your monthly pay on house debt, you have only 8% left for the remainder of your debt payments. In the example of someone who earns $5,000 a month, 8% would come to $400. Many car payments are more than that.
  • And those percentages — frequently called debt-to-income ratios — are maximums, not recommendations for healthy living. People who spend 36% of their pay on debt are “teetering on the edge of being financially unstable,” says June Walbert, a financial planner with San Antonio-based USAA, a financial-services company that largely focuses on military families.
  • She counsels clients to limit total debt payments to 20% of pretax income, so they have a buffer for surprise expenses.
  • One way to keep from getting in too deep is to run a worst-case scenario before taking out any money. Home-equity lines of credit, for instance, often come with variable interest rates, but banks are required to disclose a rate cap in the loan documents. Calculate what the payment would be if you borrowed up to the limit at the highest interest rate.