Mortgage costs are at their most expensive in 30 years

Skyrocketing home prices and increases in mortgage rates have diminished first homeowners  down payment and buying power.

How much of your income should go to a mortgage payment?

Forbes suggest that you shouldn’t pay more than 25% of your monthly after tax income on mortgage payments.

According to BetaShares modelling -  42.8% of  Income is used to pay mortgages with the national house price now 6.2 times the average after-tax annual household income! 

Mortgage rates in Aus have increased from 2-3pc to 5-6pc 

Mortgage rates in USA are in 7s and in South Africa in the 10s!)

Do you think interest rates will continue to rise? 

What effect will this have on the economy? 

Is it still a good time to buy property? 

Share your thoughts in the comments below. 

How the calculation works

The model utilises median capital city house prices, the average combined after-tax income for a couple, a 10% house deposit and the average discount variable rate

When lenders determine your serviceability , they use a debt-to-income ratio .

How is this calculated?  

They add up all your debt payments and dividing it by your gross monthly income. 

Say your monthly income is $7,000, your car payment is $400, your student loans are $200, your credit card payment is $500 and your current home payment is $1,700. All that together is $2,800. So, your DTI ratio is 40% since $2,800 is 40% of $7,000.

Why you should use a good mortgage broker - such as BSI Finance 

In general, a good DTI to aim for is between 36% and 43%. Some lenders will go higher, but the lower your DTI, the more likely you are to be pre-approved for a mortgage. Different lenders have different DTI requirements, though, so compare multiple mortgage lenders to find one that works for you.

There are a number of ways to lower your DTI

• Find a less expensive house. While your lender might approve you for a loan up to a certain amount, you don’t necessarily have to buy a home for the full amount. The lower the home price, the lower your monthly payments will be. 

Maybe consider renting your dream home and buying a less expensive investment home - to get into the property market? 

• Boost your deposit . The higher your deposit , the lower your monthly payment will be. So, if you can, save up so you can secure that lower payment.

•               Improve your credit score . Get a better credit rating . Look to pay your outstanding debt, like credit cards, car loans or student loans. This could lower your DTI, and  improve your credit score. A higher credit score means you could get a lower interest rate offered by your Lenden

• Get a lower interest rate - you may be leaving money off the table by shopping around for a better bank rate!

Source:

https://www.forbes.com/advisor/mortgages/mortgage-to-income-ratio/