I want a house! However, many people have no idea how much they can borrow for a mortgage.
Therefore, in this article, you will learn how much you can borrow in relation to your annual income, at what age you can easily pay off your mortgage, and the amount you can borrow.
how much house can i afford
The standard mortgage is five times the annual income.
| Yield | Load rate | Fixed | Fixed for the entire period |
| Up to10％ | 10.0％ | 10.9％ | 11.6％ |
| 10％～15％以内 | 19.6％ | 18.0％ | 18.0％ |
| 15％～20％以内 | 26.9％ | 24.5％ | 23.3％ |
| 20％～25％以内 | 20.4％ | 19.6％ | 19.0％ |
| 25％～30％以内 | 12.1％ | 13.6％ | 15.9％ |
| 30％～35％以内 | 6.3％ | 7.1％ | 5.8％ |
| 35％～40％以内 | 2.5％ | 2.7％ | 4.8％ |
| 40％ or | 2.2％ | 3.5％ | 1.6％ |
For all types of interest rates, the highest percentage of borrowers is at a repayment rate between 15% and 20%, and the next highest is between 20% and 25%.
In other words, many people take out a mortgage loan with a repayment rate of about 20%, which is about five times their annual income. However, the amount of the annual income multiplier for mortgages is a case-by-case decision and depends on the borrower's circumstances.
The interest rate market for mortgage loans has been low for a long time, and many people use variable interest rates. According to the survey, 62.9% of mortgage borrowers used variable rates, 24.5% used fixed-term options, and 12.6% used fixed rates for the entire term of the loan.
Breakdown of expenses for buying a house
When buying a house, a down payment is usually made and the balance is financed with a mortgage. In other words.
Property price = [down payment] + [mortgage].
This means that the real estate price = [down payment] + [mortgage] is.
Down payment, equity
A down payment is what is called equity in the purchase of a home.
Many people believe that it is better to make as large a down payment as possible because a larger down payment means lower mortgage payments.
On the other hand, you also need money for your children's education and a reserve for emergencies. Decide how much you want to make as a down payment, taking into account your life plans so that your future life is not hindered.
Moving to a new house and the cost of furniture and appliances can also be unexpectedly expensive.
Think carefully about how much you want your down payment to be so you don't run out of savings ahead of time.
Mortgages are repaid monthly.
The mortgage is the portion of the purchase price less the down payment. The monthly repayment amount depends on how many years the mortgage is repaid over.
Note that you can also make higher repayments at the bonus time.
If you are buying a house, you may think that you can afford the monthly repayments if the loan is equal to the rent.
However, you should consider how much you can afford to pay each month, taking into account your cost of living trend.
In addition, you have to pay various fees and taxes when you buy a house. Specifically, these are
- Purchase agreements at the time of signing, and
- Registration tax at the time of registration
- Fees for court clerk
- Loan guarantee fee
- Real estate brokerage fees
- Real estate transfer tax when you purchase land or buildings
In addition, there is the ongoing burden of "property taxes," "fire insurance premiums," and, if applicable, "earthquake insurance premiums".
For condominiums, the burden of the "repair reserve fund", the "management fee" and the "parking fee" must also be taken into account.
In addition, for a single-family house, you need to plan the renovation work yourself. Create a financial plan that takes these charges into account.
Date of the beginning of the repayment
Mortgages are repayable over a long period of time, with a typical mortgage having a maximum term of 35 years.
For example, if a mortgage is taken out for 35 years and repayments start at age 35, repayments will continue until age 70.
If you are concerned that repayments will continue until you retire, you need to decide whether to take out a mortgage where repayments end at the age you retire, or take out a 35-year loan and make scheduled early repayments.
On the other hand, it may be difficult to repay early as education and living expenses skyrocket, and you may be left with a loan upon retirement.
If you buy a home when you are young, you may need to budget more money for renovations because the home is expected to deteriorate as you age.
Consider the impact of starting these loan repayments when deciding on a loan amount.
Repayment method (principal and interest)
There are two types of mortgage repayment: equal principal repayment and equal principal repayment, and it is also important which one you choose.
Equal repayment of principal and interest.
This is a repayment method in which the monthly repayment amount is fixed and the share of principal and interest in the repayment amount varies.
The advantage is that it's easy to set up a repayment plan because you pay a fixed amount each month. The downside, however, is that the principal balance is low at the beginning of repayment, so repayment is slow and the total amount of interest is high.
Even repayment of the principal
In this method, the capital is repaid each month in a fixed amount, and the interest is added to the capital amount.
The monthly repayment amount is highest at the beginning of repayment and then gradually decreases.
For the same loan amount, even repayment has the advantage that the total repayment amount is lower, but the disadvantage that the repayment burden is higher at the beginning of repayment.
The decision whether to pay a fixed monthly amount in equal monthly installments of principal and interest or equal monthly installments of principal with a smaller total amount should be made after calculating the monthly installments of principal for both options and carefully considering which is more appropriate for the lifestyle.
Individual simulations when taking out a mortgage loan.
We've reported that the standard mortgage loan amount is about five times your annual income.
But even if your annual income is the same, the amount you can spend on repaying the loan will depend on your family structure, occupation, whether or not you have a car, your lifestyle and other factors.
In addition, a mortgage is a long-term loan that can lead to significant changes in your life later on.
In practice, it is necessary to simulate several plans with different down payments, mortgage loan amounts and repayment periods in order to verify the monthly repayments and choose a method that will allow you to repay the loan without difficulty.
In addition, it is advisable to draw up a cash flow diagram that takes into account your family's life plans and to check whether you will be able to repay the mortgage loan properly.
The concept of affordable repayment
Even if you pass the mortgage review process, it's the end of the world if you can't repay the loan.
In most cases, the contract term of a mortgage is particularly long, about 30 years. Here are three important points to ensure that repayments can be made easily over a long period of time.
Prioritize the amount you can actually pay back over the maximum amount you can pay back.
The LTV is an indication of the maximum amount that can be borrowed based on annual income and the repayment burden ratio. The amount that can be used for repayments varies depending on whether you are a single person or a family household, even if your annual income is the same.
Use any simulation as a reference to take out a mortgage loan at an amount that is favorable to you.
Take out a loan early
Taking out a loan early and setting a longer repayment period reduces the monthly repayment burden: if a loan of 30 million euros is paid off in 30 years, the annual repayment is 1 million euros and the monthly installment is about 83.000 euros. (The interest rates, etc.
are not taken into account here.) On the other hand, if the loan is paid off in 40 years, the annual repayment is €750,000 with monthly installments of €625,000.
So the sooner you take out a loan, the lower your monthly payments will be.
Protect retirement savings and reduce health risks
The most common age group in terms of basic characteristics of mortgage contract holders was in the 30s.
It is understood that many buyers purchase so that their mortgage contract ends around the typical company retirement age (65).
The next most common age group was 40, but in some cases the repayment period may exceed retirement age.
In this case, one is concerned about the impact on retirement funds.
There is also the risk that, depending on their health, they may not be able to obtain group life insurance associated with the mortgage.
To eliminate these risks as much as possible, it is advisable to take out a loan at an early stage.
Save a larger down payment before you buy.
More and more financial institutions are now offering mortgages for the full purchase price without a down payment.
However, in order to repay the loan without problems, it is advisable to take out a mortgage with a down payment.
The loan amount is reduced by the amount of the down payment, which reduces the repayment amount.
If you are thinking of buying a home, you should gradually save and pool your down payment.
It is necessary to look for a wide range of properties.
What is a priority when buying a home depends on the particular household.
For example, a household with children may be looking for a new home in an area where the school district the children currently attend remains unchanged.
In some cases, if you have children, you may need to make other payments in addition to the mortgage, z. B. For student insurance.
If the purchase price of the property you are interested in exceeds your credit limit, we recommend that you consider a property that you can repay without difficulty.
Check out different real estate options, z. B. Buying a used property in the school district and renovating it, or looking for a place to live.
The future cash flows are also important.
It is important to have a concrete financial plan in order to be able to make adequate repayments. The plan must be designed to generate cash flow in the future.
When creating a financial plan, you should first get an overview of your current income and expenses.
Analyzing your annual income and expenses makes it easier to calculate your repayment capacity, your savings potential and an appropriate loan amount.
It is also important to consider future life events.
Predicting events that are likely to require large amounts of cash decades in advance will help you determine the amount you need to save.
Take steps to increase the size of the loan
If your line of credit doesn't reach the amount you want, try the actions below.
In particular, you can significantly increase your credit limit by taking out two loans or combining income.
Use of coupled loans or combined income.
A couple's loan is a way for you and other relatives who live together to also borrow against a property.
If you have a relative who lives with you and has a stable income, a couple loan can significantly increase the amount you can borrow.
In a paired loan, two loan agreements are essentially signed, with each party acting as guarantor for the other party.
Any contractor can join a group loan program and receive mortgage deductions.
Another way to increase the loan amount by increasing the amount of income is to combine income.
This is a method of obtaining a loan in which the annual income of a relative with a certain income is added to the annual income of the primary borrower.
Since only one contract is required for income aggregation, the overhead burden at the time of contracting can be reduced compared to a couple loan. Another advantage is that if the primary borrower dies in an accident, the remaining debt can be paid off with the insurance proceeds from the group loan.
Repaying other loans.
If you have other loans, z. B. a car loan or a credit card loan, your repayment ratio must include repayments on those loans as well.
The more other loans you have, the higher your annual repayments will be, increasing your repayment rate and reducing your credit limit.
If you want to increase your credit line, it is important that you pay off all the loans you are currently paying off.
However, it takes time for your loan to show up in the personal loan bureaus after you pay off your loan.
If you want to apply for a loan immediately after paying off the loan, you should ask the loan company for a certificate of payment.
The amount you can borrow is different from the amount you can pay back.
The amount that can be borrowed is only the amount that the financial institution has determined, "This is the amount you can repay". Whether you can actually repay the loan without difficulty, the financial institution cannot know.
Even if you manage to borrow the amount you want, in the worst case scenario, you will have to give up the house if you have trouble repaying it later on.
When deciding on the actual loan amount, set an amount that you can repay.
When deciding on the amount, consider the costs that will be incurred after the home is purchased.
When you buy a condo, you have to pay monthly management fees and a reserve fund for repairs. You will also have to pay property taxes and various insurance premiums.
If you are currently renting, you may find it difficult to get by with repaying the loan in the amount of your current rent!
Summary
In this article, we have explored how much mortgage you can borrow and how much you can borrow to repay your mortgage without difficulty.
Simply multiplying the amount by your annual income can be very cumbersome.
Simulate in advance the amount of loan that you can easily repay according to your life plan, and aim for the ideal home purchase.