by K Lochery

Created on: December 17, 2008

There are hundred's of sites available on the internet with online calculator's all designed to help you find out how much of a mortgage you can afford with your current ingoing's and outgoings. They can also help you to decide what type of mortgage would be best for you, whether it be a subprime mortgage, a fixed-rate mortgage or an adjustable-rate mortgage. For the over 62's, it can also help you decide the best reverse mortgage for your needs.

Most of the online calculator's use the following criteria to help calculate what mortgage you could afford: annual income, monthly debt and outgoings, down-payment, property tax rate, home insurance rate, interest rate, length of loan and the lender's qualification ratios. Obviously the online calculator's can't be precise on exactly how much you would be able to afford but it does give you some idea before you decide to approach a mortgage company or lender.

With rising property houses and interest rates going haywire, it's a question on every clients lips that are trying to make their way up that treacherous property ladder, how affordable are today's mortgages?

Mortgage companies and lenders are slowly amending their criteria for different mortgages so that they are based on what a borrower can afford rather than calculating it by their incomes alone. It is all dependant on interest rates, the length of the loan, and how much the client already has to pay out every month that can now decide how much someone can borrow for the purpose of property. Affordability-based mortgage lending works out exactly what a person can pay after all expenses have been deducted from their salaries. This is a better way for mortgage companies to work out loans, as it leads to less defaults and means that both the borrower and the lender take less risks.

Mortgage payment affordability works out a maximum amount that a lender will lend a borrower, depending on any previous debt and their gross income and works out a much affordable plan for the client. This widely benefit's the lender, mainly due to the fact that the client shouldn't find a problem with the repayments meaning the loan will never be defaulted.

Many companies work with a standard ratio of 28/36. Basically this suggests that the total Principle Taxes and Insurance (or PITI for short) would never be above 28% of the gross monthly earnings and the total of the Principle Taxes and Insurance combined with the outstanding debts a client may already have, would never be higher than 36% of the gross monthly income.

These standards ensure that borrowers get a fair mortgage rate and never end up borrowing more than what they can afford to give back. The client should still look around for the best rates however as rising or decreasing interest rates would have a function in the final monthly payment agreed. It offers flexibility and means that each customer is given a custom based mortgage based on their particular needs and circumstances.

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