Select Page

What Percentage Of Income Can You Afford For Mortgage Payments?

What Percentage Of Income Can You Afford For Mortgage Payments?

The problem with the question of what percentage of your income you should pay into your mortgage is that there is no right answer. The amount you choose is not based on what you can actually afford; it is based on what you are comfortable with.

If it was really about how much you could afford, you would sell your car and walk everywhere, you would buy the cheapest toilet roll and eat 12 cents tins of beans every day.

The question is all about how much you are willing to part with, how quickly you want to pay your mortgage off, and how deeply you are willing to cut back in order to pay off your mortgage more quickly. This article is populated with a series of different and unrelated suggestions and ideas you can try.

Calculation Notes

I am not trying to mislead you with my calculations, so let me make it clear that my examples are very simple and rough examples. There are more variables in real life. My examples simply show how each idea or suggestion works. In addition, you will have to substitute in your income and outgoings into my calculations to make them directly relevant to you.

Also, when speaking of outgoings, I do not mention property tax and home insurance payments. Remember that such things may matter when comparing paying a mortgage to paying rent.

What Percentage Of Income Can You Afford For Mortgage Payments?

Idea / Suggestion One

Double Team It For A Super Fast Repayment

If you are living with a partner/spouse and your partner works, then live on the highest wage and put the whole of the other person’s wage onto your mortgage. It is tough trying to fund a life on just one wage, but it is possible, even if you have to cut back rather heavily.

If one of you is currently supporting the family and the other doesn’t work, then have the other person get a job, even if it is a part-time job, and put all of that person’s wages into the mortgage.

You will probably have to cut back in many places, but this is probably the fastest way to pay off your debt. You may be tempted to spend some of the other partner’s money, such as by only putting 50% of the other partner’s wage on the mortgage, but you need to think of the bigger picture.

One partner provides for the family, and the other works to pay off the mortgage. This way, you cut back for a few rough years, and you spend the rest of your years in a house that is paid off. When your house is paid off, it means that the partner who was paying off the mortgage now earns a wage that is 100% disposable income. Isn’t that worth a few years of tough times?

Result – How Much Can You Afford?

You can afford 100% of your partners wage, as that is what is paid into the mortgage for a speedy repayment.

  • One partner works to provide while the other works to pay the mortgage
  • Do not skim from the other partner’s wage
  • Suffer for years, so you may live in luxury afterwards
  • Do not cut back on your kid’s too much
  • Remove luxury expenses now, so you may enjoy them more later
Idea / Suggestion Two

Take On More Jobs And Dramatically Increase Your Income

Let’s assume you are working alone and you do not have a partner. You may have a full-time job that allows you to pay a reasonable amount off your mortgage. The traditional model is between 35% and 45% of your pre-tax income, but you are just paying 10% of your income for now. Doing this allows you to live alone, afford your bills, and live in relative luxury (i.e. you don’t have to go without very often).

Doing this is fine, but you will be paying your mortgage for a great many years. Take a part-time job that you work as well as your full-time job and invest 100% of your part-time wage into your mortgage.

Let’s say your full-time wage is $30,000 per year with your full-time job. You are currently paying (10%) $3000 per year off your mortgage. You work weekends in a part-time job and earn an extra $8630 per year. Put that part-time money onto your mortgage payments and you are paying $11,630 off your mortgage per year. That is more than 35% of your full-time wage because 35% of your full-time wage is $10,500.

Result – How Much Can You Afford For Your Mortgage Repayments?

You can afford 100% of your part-time job‘s wages, and will allow you to maintain a reasonably high standard of living if you are only paying 10% of your full-time wage on your mortgage.

  • A part-time job allows you to pay more than 35% of your full-time wage
  • Pay just 10% of your full-time wage
  • Pay 100% of your part-time wage
  • Do not spend your part-time wages on anything else
  • Direct debit your part-time wage out of your account the day it is paid
Idea / Suggestion Three

Pay The Same Amount That You Would In Rent

One of the most common justifications for first-time buyers is that the money they are paying for rent could be paid on a mortgage. Personally, I do not agree with this because it overlooks the massive amount people pay on interest for their mortgage, which significantly lowers the amount they make in profit when they sell the house. It also overlooks property taxes, property repairs, and home insurance.

The argument that you could be paying your rent money towards your mortgage should dictate how much you pay towards your mortgage. The logic is that if you can afford to pay your rent right now, then you can afford to pay your mortgage if you set your payments to the same amount as your rent.

Let’s say you were only earning $1000 per month, and you were paying rent of $450, then you are paying 45% of your income, which is the traditional figure for how much you should pay per month on your mortgage.

Result – How Much Can You Afford?

You are paying between 35% and 45% of your income if you aim to pay the same amount per month off your mortgage as you were paying on rent.

  • Paying the same as your previous rent means you know you can afford it
  • It will take you a long time to pay off your mortgage
  • Your outgoings do not change per month if you try this method
  • You do not have to change your living standards
  • A working couple could live a more luxurious lifestyle
Idea / Suggestion Four

How Much Does Your Lender Say You Should Pay?

Your mortgage lender is going to have something to say about how much you spend on your mortgage repayments. This article assumes that your lender demands a low repayment amount, and that you are considering paying more, but that is not always how it works out. There are times when your mortgage lender demands repayments of 35% to 45% per month. If you do not agree to this, then they may not pre-approve your mortgage.

If your repayments are set to a reasonably high level, then ideas of paying extra are not urgent. You may try one of the other methods on this article, such as getting a part-time job and paying extra that way, or you may pay extra in an adhoc manner. For example, if you sell your car, buy a cheaper one, and put the money you have left over into your mortgage, or you may put your birthday money towards your mortgage.

Result – How Much Can You Afford?

You can afford exactly what the lender tells you that you can afford is the amount you pay. This is usually less than 50% of your combined (yours and your partner’s) earnings.

  • Paying what the lender demands will take the pressure off
  • Over pay your mortgage to pay it off quicker
  • Consider making adhoc payments when you are flush with cash
  • Use one of the other methods on this article to top up how much you pay
  • Re-consider your repayment amounts when you swap mortgage providers
Idea / Suggestion Five

Consult Your Budget To See How Much You Can Pay

It is an obvious suggestion, but there are plenty of people who have disposable income that they simply fritter away or even give away because it has no purpose in their lives. Start by calculating your disposable income when you make up your budget.

Consult your budget and forget about cutting back to start with, simply figure out how much you can put into your mortgage. Once you have that figure, if it is robust enough, then stick with it.

If you would like to speed up the repayment process, then start cutting things such as the gym or having one car leased instead of two. Cut away some of the fat you can live without, especially with regards to impulse buys that could have been avoided. For example, did you really need to replace your plastic Christmas trees this year, and couldn’t you have had the rugs washes rather than replaced?

Result – How Much Can You Afford?

Your budget should say, but even people who live hand-to-mouth are able to spare an extra 10%. It may mean cutting your budget here and there, but it is worth the sacrifice.

  • Don’t make your budget cutting too severe or you will not stick to it
  • Give your liquid cash a purpose by putting it on your mortgage
  • Slice off some extra from your wages with a separate direct debit
  • Check and re-check your numbers before you start cutting
  • Use an online repayment calculator to help create a budget
Idea / Suggestion Six

Consider That You Cannot Afford It At All

While researching, I often saw people calculate with figures of around $4000 per month for income, which is why I have kept my calculation examples fairly low. However, the argument has to be put forth that you maybe need a high income in order to buy a house.

You can quote as many debt ratios as you like–there are just some wages where you simply cannot afford to buy a house. At best, you may be able to get a very small flat/apartment. Your best bet may be to go “in” on an investment and buy half of a place with somebody else. You live there, and they get rent from you each month.

If you have a wage of $1600, no matter what your debt ratio and expense ratios are, you are simply not able to afford mortgage repayments that will pay off your debt before you retire.

Even though it seems like a very good idea, you should never get a loan to pay your initial deposit. If you cannot save the deposit, then you cannot afford a mortgage. You may justify it to yourself by saying you are paying rent that could be paying into your mortgage, but it is not about how you pay your bills, it is about how you handle your wealth, and if you cannot save, then you cannot afford your mortgage repayments. In addition, if you get a loan, then you are going to be paying your mortgage payment (be it the same as your rent or not), and a loan payment, which brings your total to more than your rent payments.

Result – How Much Can You Afford?

Unless you have spouse or partner who works, you may not be able to afford a house or apartment on a below-average wage. Getting a mortgage may not be a viable option for you.

  • Just because the bank offers it doesn’t mean you should take it
  • Low repayments means you may still paying it off during your retirement
  • Do not get a loan in order to pay your initial deposit
  • Your monthly payments should have your house paid off by retirement
  • Low cost houses may mean low value houses that are difficult to resell

[fusion_separator style_type=”single solid” hide_on_mobile=”small-visibility,medium-visibility,large-visibility” class=”” id=”” sep_color=”” top_margin=”” bottom_margin=”” border_size=”” icon=”” icon_circle=”” icon_circle_color=”” width=”” alignment=”center”][/fusion_separator]

Conclusion – How Much Are You Willing To Suffer?

Struggle to suceedThe fact is that people in the US are hyper consumers. Even people within poverty brackets are living the life of kings and queens compared to the conditions people live in when they are in the poverty bracket of other countries. You can scale back your spending, scale it back again, and maybe even a third time. It all depends on how much pride you have.

Could you be seen wearing goodwill clothes every day for the next ten years? Are you willing to take the bus or walk everywhere? Are you willing to work extra hours while everybody else is going out?

What percentage of your income you pay shouldn’t matter if you have a plan to pay off your mortgage and you are willing to scale back while earning more.

About The Author

Ash The Great

After a varied career in different industries from the hospitality industry to the financial consultancy industry, Ash now spends his days working as a professional writer.

Leave a reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Popular Posts