How Much Can You Borrow?
Perhaps even before shopping for a property, we need to know how much we can afford to buy. We know how much money we have in our hands. But how do we know how much mortgage we can borrow?
One way is to find out from the lenders and banks. Different lenders and banks have apply different methods in arriving at the eligible amount to borrow. Some lenders and banks will take 30% of your salary while others could go up to 40%. Therefore, it is good to shop around.
The disadvantage of this method is you have to visit the different lenders and banks. This could take a lot of time. You will have to disclose your personal financial information such as your income and your debts in order for the lenders and banks to assess your financial health and determine how much mortgage you can borrow.
A second method, and a more convenient method, is to refer to a mortgage repayment schedule. It looks like this.
Here’s how it works. Assume that your monthly salary is $2,700 and you have no other debt to service. Assume the bank allows you to borrow up to 33.3% of your monthly income. This means that your max monthly repayment allowed is 33.3% x $2,400 = $900. Now look at the mortgage repayment schedule. The bank will allow you to borrow $100,000 if the tenure is 14 years or above, because the monthly repayment is less than $900. If you want to borrow $120,000 then your tenure will have to be at least 18 years or above. These are areas shaded in BLUE.
Here’s another example. Assume that your monthly salary is $3,900 and you have no debt. Again, the bank allows you to borrow up to 33.3% of your monthly income, which works out to be $1,300. Look at the mortgage repayment schedule. The bank will allow you to borrow $140,000 if the tenure is 13 years or above, or $160,000 if the tenure is 16 years of above and $180,000 if the tenure is 19 years and above. These are areas shaded in YELLOW and BLUE.
The disadvantage of this method is you have to obtain the mortgage repayment schedules from different lenders and banks. And some lenders or banks don’t give out these easily. Also, when the bank changes its mortgage rates, you will need to obtain the updated mortgage repayment schedules.
The last method to find out how much mortgage you can borrow is to use a mortgage calculator. Here’ s a “how much mortgage can I afford” calculator. This requires you to input certain data into the calculator. The advantage with this method is it requires you to input the values or data correctly into the correct fields. Some people might find this confusing.
Whichever method you use, it is always a good practice to find out how much mortgage you are eligible for. You certainly don’t want to get caught having made a down payment on a property and later unable to find sufficient mortgage financing.