Know what mortgage we will be able to pay with the peace of mind we want.
Hire the one that offers us the best conditions, once we have clear the maximum amount and term we can and we want to assume.
Practical example we will see how to calculate and decide on these two issues
- A person who wants to buy their first home, without help from anyone else.
- It has an indefinite contract of quite seniority and charges more than 1,600 euros net per month.
- He is a saving person, who has been able to save about 50,000 euros.
- He is under 40 years old; imagine that he is 35 years old, for example.
It is a Good Finance profile that wants a house, but without risking its future in it.
Let’s look first at the maximum fee that you could wisely pay. To do this, let’s take 30% of your net income as the maximum debt ratio. The complexity of this calculation is that, in mortgages at a variable rate, we do not know what type of interest to take. If we take too low a type, we will be reckless. If we take one too high, we can end up sinning from cautious.
I recommend doing two calculations
One with a 3% Euribor and another 5%, to which to add the differential approved by a bank. Today, a 1.89% differential such as that of the ING mortgage is the best that, in general terms, we can obtain if we go to the banks without the help of a mortgage broker.
With this example, we will calculate the maximum amount based on an interest rate of 4.89% and 6.89%.
The Good Finance maximum share of the example is 30% of 1,600 euros, that is, 480 euros . When the applicant is 35 years old, the normal maximum term of the banks would be 35 years. Some entities could reach 40 years. First I give you the results that the ING Orange Mortgage simulator gives us:
According to ING, the client in the example could ask them for up to 136,812 euros at 40 years. If we add the 50,000 euros that the client has saved, his purchase capacity is 186,812 euros (which must cover the price of the house plus expenses, which can be calculated in this simulator). Let’s now look at our calculations:
Interest rate of 4.89% at 35 years
The maximum fee to be taken into account 480 euros (we can use simulators like this for this). If we use the simulator of the Bank of Spain we encounter a problem: you cannot calculate a mortgage whose term exceeds 30 years. But we can fill this deficiency with the Futur Finances mortgage simulator and the following results:
The maximum amount we can request is 96,455 euros .
Interest rate of 6.89% at 35 years , is a maximum amount to request of 76.050 euros .
The first conclusion is clear: we must be more cautious than what a bank tells us, such as ING Direct. Neither request a term of 40 years nor reach the 136,000 euros that ING proposes. At most, ask for a term of 35 years , and an amount that goes between 96,455 and 76,050 euros .
As for the maximum purchase-sale price that the client of the example can request, using a calculator of purchase-sale expenses and writing of mortgage loans, assuming a new house in my homeland, Illes Balears, it turns out:
Case 1: 4.89% rate
We could buy a house for 120,556 euros.
The approximate costs would be, for a mortgage of 96,455 euros and a purchase price of 120,556 euros (assuming an opening commission of 0%):
Asking for 96,455 euros, plus 50,000 euros, we have a purchase capacity of 146,455 euros. If the expenses are one 18,000 euros, that entails:
96,455 + 50,000 euros = 146,455 euros.
House of 120,000 euros plus expenses of 18,000 euros = 138,000 euros.
Recalculating, we could buy a somewhat more expensive house , of about 8,455 euros more (146,455 – 138,000 = 8,455 euros), that is, of 128,455 euros maximum .
If we take the most Good Finance example, with a mortgage of 76,050 euros, it turns out:
Purchase capacity of 76,050 plus 50,000 euros = 126,050 euros.
A house of 95,062 euros plus expenses of 18,000 euros are: 113,062 euros. We could, therefore, buy a house of up to 108,050 euros .
Being Good Finance, the maximum purchase-sale price of the house that the client of the example could face would be between 108,050 euros to 128,455 euros , below what some bank simulators would recommend.