What kind of mortgage you can afford.
As I mentioned in my previous article the longer the terms you wish to repay your mortgage the lower the monthly amount you have to pay. So it might seem a good idea to take a longer mortgage in order to lower the monthly installment, however, the longer you pay the bigger the charge for your loan is. So it would be best to take the shortest possible loan. In order to to that you ned to be certain how much money you can devote to monthly mortgage payments. Economist have come to certain conclusions concerning that matter and prepared a simple equation which might help you decide what you can afford.
First of all, your monthly housing cost (no matter whether you have a biweekly mortgage, or the monthly one) should not be higher than 28% of your gross income, or in case of two-income families of both incomes.
Secondly, you ought to have a stable rainy day savings. Experts such as economists or loan brokers suggest that it be a few-months’ worth of your average income. It is to assure that when your fridge breaks down, or you need to take an unpaid holiday you have soem money to pay for the mortgage and survive the hard times.
Last, but by all means not least, you need to take into consideration some other regular payments that you might have. Whether it be credit card bills, a car loan or a student loan you need to remember that it all adds up and you cannot neglect any of them, not to mention your mortgage. And again economists suggest that your monthly overall debt payment should be lower than 36% of your total monthly income.
If you take all that into consideration it should not be too difficult to make use of an mortgage calculator and count how much money you will have every month to pay your mortgage, and in the end how large a mortgage you can apply for.