How much should your Monthly Mortgage Payment be ?

Published on Jul 14 2007 // Written By // Popular, Real Estate, Savings, Supporter

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.



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About

Tushar Mathur has been blogging about Personal Finance since January, 2007. This has helped him recognize what topics readers like and relate to. The goal is to spot good news-worthy info and get it out to the public as soon as possible. Tushar Mathur maintains this Personal Finance blog called Everything Finance. The blog articles fall under these categories: Investing, saving money, shopping, blogging and making money online. Send an email at tushar@everythingfinanceblog.com

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