Mortgages - How Lenders Work Out Affordability
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James Copper
Apr 26, 2013, 8:50:03 AM4/26/13
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Article Title: Mortgages - How Lenders Work Out Affordability
Author: James Copper
Word Count: 546
Article URL: http://www.isnare.com/?aid=134173&ca=Finances
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=134173
Easy Publish Tool: http://www.isnare.com/html.php?aid=134173
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If you are thinking about purchasing a property it is first important to know how much you can afford to borrow. Mortgage Lenders traditionally used income multiples to work out this amount.
If an applicant was earning 30,000 a year the lender would calculate that they could comfortably afford to borrow 3.5 x their income which is 105,000. If approached with a joint application, lenders would add the two incomes together say 30,000 and 16,000; this would make their total income 46,000. To work out how much the couple could borrow they would then multiply this figure by 2.5, this would make a total of 115,000.
However these affordability practices have now become outdated with house price inflation and low interest rates, these factors have made the cost of borrowing a mortgage cheaper.
Why The Practice Has Changed?
In the last few years mortgage lenders have started to offer larger amounts, they have increased the income multiples to for example 4 or 5 times salary. Since the property house price boom, this is often required to give buyers a chance of meeting market prices and seller expectations.
Repossession of property is currently at a historically low level and people have more disposable income making it easier to pay their mortgage. 50 percent of lenders now work out how you can borrow depending upon your ability to pay as opposed to the income multiple criteria discussed above.
This means that everyone applying for a loan is not assessed in the same way, the majority of lenders will be offered more money via this method, some however may not, for example single mothers.
How Affordability Is Calculated
Every lender has a different method for working out how much they are prepared to lend you. All of them will however ask for proof of income, number of dependents, other monthly commitments (credit cards, store cards, etc), and your essential household spend.
Interest rates will also affect your repayments. Unless you choose a fixed rate mortgage, which keep interest on the mortgage at a fixed rate. Interest rate rises can affect a borrowers ability to repay, so it is an important consideration when taken out a mortgage.
How To Avoid Get Into Problems
It is your responsibility to ensure that you do not borrow more than you can afford, banks and lenders obviously have precautions in place to protect their investment, interest rate fluctuations and other potential commitments have to be taken into consideration before taking out a mortgage that could leave you in trouble.
Check out some online mortgage calculators as this will lay out the figures clearly in front of you so you can consider your options.
If you are a first time buyer it is important to take into account some other outgoings such as buildings insurance, mortgage payment insurance, etc.
Read the Key Facts illustration from your lender or broker this will show you the difference interest rate rises or falls can make to your payments.
If you choose a fixed rate deal dont forget you may only be on a low rate for a short period of time after which time your rate can suddenly increase.
About The Author: James Copper enjoys writing on all areas of personal and commercial finance. He is a Mortgage Loan Broker and works for Any Loans - http://www.any-loans.co.uk
Please use the HTML version of this article at:
http://www.isnare.com/html.php?aid=134173
*********************** ARTICLE END ***********************
- To distribute your articles go to http://www.isnare.com/distribution.php
- For more free-reprint articles go to http://www.isnare.com
Message delivered directly to members of the group:
publish-the...@googlegroups.com
*****************************************************************
Please consider this free-reprint article written by:
James Copper
*****************************
IMPORTANT - Publication/Reprint Terms
- You have permission to publish this article electronically in free-only publications such as a website or an ezine as long as the bylines are included.
- You are not allowed to use this article for commercial purposes. The article should only be reprinted in a publicly accessible website and not in a members-only commercial site.
- You are not allowed to post/reprint this article in any sites/publications that contains or supports hate, violence, porn and warez or any indecent and illegal sites/publications.
- You are not allowed to use this article in UCE (Unsolicited Commercial Email) or SPAM. This article MUST be distributed in an opt-in email list only.
- If you distribute this article in an ezine or newsletter, we ask that you send a copy of the newsletter or ezine that contains the article to http://www.isnare.com/eta.php?aid=134173
- If you post this article in a website/forum/blog, ALL links MUST be set to hyperlinks and we ask that you send a copy of the URL where the article is posted to http://www.isnare.com/eta.php?aid=134173
- We request that you ask permission from the author if you want to publish this article in print.
The role of iSnare.com is only to distribute this article as part of its Article Distribution feature ( http://www.isnare.com/distribution.php ). iSnare.com does NOT own this article, please respect the author's copyright and this publication/reprint terms. If you do not agree to any of these terms, please do not reprint or publish this article.
*****************************
Article Title: Mortgages - How Lenders Work Out Affordability
Author: James Copper
Word Count: 546
Article URL: http://www.isnare.com/?aid=134173&ca=Finances
Format: 64cpl
Contact The Author: http://www.isnare.com/eta.php?aid=134173
Easy Publish Tool: http://www.isnare.com/html.php?aid=134173
*********************** ARTICLE START ***********************
If you are thinking about purchasing a property it is first important to know how much you can afford to borrow. Mortgage Lenders traditionally used income multiples to work out this amount.
If an applicant was earning 30,000 a year the lender would calculate that they could comfortably afford to borrow 3.5 x their income which is 105,000. If approached with a joint application, lenders would add the two incomes together say 30,000 and 16,000; this would make their total income 46,000. To work out how much the couple could borrow they would then multiply this figure by 2.5, this would make a total of 115,000.
However these affordability practices have now become outdated with house price inflation and low interest rates, these factors have made the cost of borrowing a mortgage cheaper.
Why The Practice Has Changed?
In the last few years mortgage lenders have started to offer larger amounts, they have increased the income multiples to for example 4 or 5 times salary. Since the property house price boom, this is often required to give buyers a chance of meeting market prices and seller expectations.
Repossession of property is currently at a historically low level and people have more disposable income making it easier to pay their mortgage. 50 percent of lenders now work out how you can borrow depending upon your ability to pay as opposed to the income multiple criteria discussed above.
This means that everyone applying for a loan is not assessed in the same way, the majority of lenders will be offered more money via this method, some however may not, for example single mothers.
How Affordability Is Calculated
Every lender has a different method for working out how much they are prepared to lend you. All of them will however ask for proof of income, number of dependents, other monthly commitments (credit cards, store cards, etc), and your essential household spend.
Interest rates will also affect your repayments. Unless you choose a fixed rate mortgage, which keep interest on the mortgage at a fixed rate. Interest rate rises can affect a borrowers ability to repay, so it is an important consideration when taken out a mortgage.
How To Avoid Get Into Problems
It is your responsibility to ensure that you do not borrow more than you can afford, banks and lenders obviously have precautions in place to protect their investment, interest rate fluctuations and other potential commitments have to be taken into consideration before taking out a mortgage that could leave you in trouble.
Check out some online mortgage calculators as this will lay out the figures clearly in front of you so you can consider your options.
If you are a first time buyer it is important to take into account some other outgoings such as buildings insurance, mortgage payment insurance, etc.
Read the Key Facts illustration from your lender or broker this will show you the difference interest rate rises or falls can make to your payments.
If you choose a fixed rate deal dont forget you may only be on a low rate for a short period of time after which time your rate can suddenly increase.
About The Author: James Copper enjoys writing on all areas of personal and commercial finance. He is a Mortgage Loan Broker and works for Any Loans - http://www.any-loans.co.uk
Please use the HTML version of this article at:
http://www.isnare.com/html.php?aid=134173
*********************** ARTICLE END ***********************
- To distribute your articles go to http://www.isnare.com/distribution.php
- For more free-reprint articles go to http://www.isnare.com
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