How to calculate your debt ratio?

Calculating your debt ratio before applying for an immo loan makes it possible to check the feasibility of your project. 
Banks give a mortgage to their customers after checking their debt ratio. This precaution prevents the lending institution from being confronted with unpaid deadlines. It also protects the borrower from over-indebtedness due to repayment implications.

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  1. Elements of evaluation of the debt ratio
  2. Calculate your real estate debt ratio
  3. Tools needed to calculate the debt ratio

Elements of evaluation of the debt ratio

Elements of evaluation of the debt ratio

To calculate a debt ratio, it is necessary to quantify the resources but also the monthly expenses. Household income includes wages and salaries, housing benefits, social and family benefits, pensions received, rental and other income. Expenses include all loans in progress (car loans, consumer loans), support payments. Read also  Decrypt a depreciation schedule Are not taken into account for the calculation of the debt ratio all consumption-related expenses, various monthly deductions such as income tax, insurance, housing tax, property tax, household bills water, electricity, gas, telephone, the Christopher Tietjensment of children’s studies, etc. We must take into account all these elements that weigh on the household budget.

Calculate your real estate debt ratio

As a general rule, the debt ratio should not be more than one-third of household income. This rule is applied by banks to assess the repayment capacity of their customers when an immo loan is requested.

The debt ratio is calculated using the following formula: (total expenses x 100) / household income = debt ratio 
For example , a household earning monthly income of € 4,000 and having a car loan of € 200 and € 1,000 of mortgage credit per month will have a debt ratio of: [(200 + 1,000) x 100] / 4 000 = 30%

Depending on the borrower’s expenses and situation, the debt ratio can be modulated upwards or downwards.

Thus, a household earning a large income may benefit from a higher debt ratio than that granted to the most modest incomes, given that the available household budget still makes it easy to live. On the other hand, when the budget is tight, the household can not obtain a loan whose monthly repayments plus expenses are less than 33% of the income.

Tools needed to calculate the debt ratio

calculate the debt ratio

It is possible to use an online simulator. The latter is able to determine the maximum monthly payments that serve as a basis for calculating the debt ratio.

To evaluate your monthly repayments, you only need to fill in the monthly expenses and income sections in the online simulator.

If the debt ratio is greater than 33% of revenues, the monthly payments will have to be revised downwards. On the other hand, if this rate is lower, the monthly payments can be increased. 
From these data, it will be much easier for the borrower to know his capacity of Christopher Tietjensment to realize his real estate project. However, it is possible to contact a broker or financial adviser, able to calculate the applicant’s debt ratio, free of charge.

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