How much of Net Income should you pay towards Mortgage.

The Toffees · 23-04-2012 5:27pm #1

Myself and the wife are currently looking at houses at the moment. We have mortgage approval in principal for more than we intend to use. My question is what % of net income is the norm to spend on a mortgage.

golden lane · 23-04-2012 5:37pm

The Toffees wrote: »

Myself and the wife are currently looking at houses at the moment. We have mortgage approval in principal for more than we intend to use. My question is what % of net income is the norm to spend on a mortgage.

you should include in that amount....insurances household charge and any maintenance/upgrading you may have to do.....also take into consideration...the distance from your jobs etc.(fuel in on the increase)....if you intend to have a family......remember there may be a severe reduction of income in the future......

now take all your monthly outgoings from your income.....what is left is your max amount........

The Toffees · 23-04-2012 5:42pm

golden lane wrote: »

you should include in that amount....insurances household charge and any maintenance/upgrading you may have to do.....also take into consideration...the distance from your jobs etc.(fuel in on the increase)....if you intend to have a family......remember there may be a severe reduction of income in the future......

now take all your monthly outgoings from your income.....what is left is your max amount........

Have taken all that in to consideration and have a maximum amount that we can afford, but wondering how much below the maximum we should go with. Would 40% of net salary be too much to be paying on a mortgage?

RoverZT · 23-04-2012 7:32pm

The Toffees wrote: »

Have taken all that in to consideration and have a maximum amount that we can afford, but wondering how much below the maximum we should go with. Would 40% of net salary be too much to be paying on a mortgage?

Way too much.

20% would be my max target.

If you get 2500 a month.

500 month a mortgage.

If you and partner get 4000 a month.

800 month mortgage.

15 % would be ideal.

The Toffees · 23-04-2012 8:13pm

We have circa €6k net income and thinking of taking on a €350k mortgage. On current interest rates of 3.29% that would work out at less than 20% but factoring in for 7% it would rise to 40%. What are your opinions taking on this amount of mortgage. Should we go with lower mortgage?

RoverZT · 23-04-2012 8:28pm

The Toffees wrote: »

We have circa €6k net income and thinking of taking on a €350k mortgage. On current interest rates of 3.29% that would work out at less than 20% but factoring in for 7% it would rise to 40%. What are your opinions taking on this amount of mortgage. Should we go with lower mortgage?

It's a tough one alright.

You and your wife are on decent money combined, but not enough for a 350k mortgage imo.

To be going for that size of a mortgage you would want to be on well over 100k a year combined.

I don't think interest rates will hit 7%, but who knows.

200-220k would be living within your means.

ntlbell · 23-04-2012 8:47pm

if your wife is planning to have kids and stay home for x amount of years or you're planning to make sure you do not base the re-payments on two wages.

maxpowers · 23-04-2012 9:37pm

the days of getting a mortgage based on 2 salaries is long gone. Your estimate should be 3.5 to 4 times the main earner.

lkjhgmnb · 23-04-2012 9:42pm

I think you should buy the house for 350K , firstly there are a lot of unsanswered questions, if you are both young and this is your dream house , go for it !
Also assuming you are buying a good house in a good area , and it is at rock bottom now , it will go up in the next 5/10 years.

As you are earning net 6k / month I assume you are both skilled ? if so then you can always be assured of a good income !

23-04-2012 9:46pm

I am paying under 20% and am on a tracker mortgage so have fairly good security as regards interest rate hikes.
I would not feel secure thinking my mortgage could be 40% of my net pay.
You really need to calculate your disposable income after all bills and incidental costs are taken out and then halve the rest to take into account unexpected expenses. You also need to have a pretty good savings plan built in so you can take a holiday now and again.
Do not over commit yourself.

tommyboy2222 · 23-04-2012 9:48pm

lkjhgmnb wrote: »

I think you should buy the house for 350K , firstly there are a lot of unsanswered questions, if you are both young and this is your dream house , go for it !
Also assuming you are buying a good house in a good area , and it is at rock bottom now , it will go up in the next 5/10 years.

As you are earning net 6k / month I assume you are both skilled ? if so then you can always be assured of a good income !

1) Agree about the dream house. Make sure you could see yourselves living there the next 30 years and are not buying to "get on the ladder".

2) No guarantee it will go up.

3) Cannot always be assured of a good income eg Architects

killers1 · 23-04-2012 11:36pm

I would say you do have the ability to service a mortgage of €350k whilst the income levels remain as they are. Repayments on a €350k mortgage over 30 yrs @ 6% are circa €2,100pm. This leaves you with a disposable income of €3,900pm. So long as you don't have an over extravagant lifestyle this should be more than sufficient to live on. The only caution I would advise would be in relation to future family plans, do you intend to have kids?, will one of you give up work?, would you have expensive creche fees? would you have enough disposable income left over from just one salary to pay the bills and enjoy the lifestyle you want? If the bank's have approved you for a higher figure than they are satisfied that if incomes remain the same you have the capacity to service a loan at that level allowing for a near doubling of interest rates. As for what % of your income should be spent on your mortgage I would say that the higher your income the higher the % you can afford and all banks calculators work off this assumption. If your net income was €3k per month you wouldn't spend €1,500pm on your mortgage (you wouldn't get it approved in any case) but if your net income was €10k and the stressed mortgage repayment €5k you still have €5k left over each month to live on... Even though the mortgage is 50% of income in both cases the 2 scenarios are vastly different...

ted1 · 24-04-2012 8:11am

If I were you I'd base it on your own salary, a lot of women don't go back to work after having a baby, of those that do a lot of it is down to having to pay the mortgage.

daltonmd · 24-04-2012 9:10am

The Toffees wrote: »

We have circa €6k net income and thinking of taking on a €350k mortgage. On current interest rates of 3.29% that would work out at less than 20% but factoring in for 7% it would rise to 40%. What are your opinions taking on this amount of mortgage. Should we go with lower mortgage?

You don't appear to have added in other costs associated with purchasing?

Property Tax.
Water charges.

Any costs coming out of your net income for housing should be taken into account.

Also - how long is your rate for? 1 year? 5 years?

You could realistically be looking at 7% interest rates in 5 years and be down 2k net on top of that for the charges above.

It's said that 25% is ideal, over 30% manageable but unwise and anything over that is danger territory.

Man007 · 24-04-2012 1:16pm

RoverZT wrote: »

To be going for that size of a mortgage you would want to be on well over 100k a year combined.

.

By my calculations they ARE on over €100k combined he said they have NET income of €6k a month thats at least €120k a year not taking Pensions into account

The_Conductor · 25-04-2012 6:36am

Man007 wrote: »

By my calculations they ARE on over €100k combined he said they have NET income of €6k a month thats at least €120k a year not taking Pensions into account

Sad but true.
I've just done a back of envelope calculation- you're quite right with your figures.

Man007 · 25-04-2012 9:19am

smccarrick wrote: »

Man007 wrote: »

By my calculations they ARE on over €100k combined he said they have NET income of €6k a month thats at least €120k a year not taking Pensions into account

Sad but true.
I've just done a back of envelope calculation- you're quite right with your figures.

Why is it sad ??????

mari2222 · 25-04-2012 9:57am

The Toffees wrote: »

Myself and the wife are currently looking at houses at the moment. We have mortgage approval in principal for more than we intend to use. My question is what % of net income is the norm to spend on a mortgage.

The long-term wisdom suggest one-third of net income.

The Toffees · 25-04-2012 10:01am

Thanks for all the replies so far, really appreciate everyones input.

smccarrick wrote: »

Sad but true.
I've just done a back of envelope calculation- you're quite right with your figures.

Why is it sad?

kennyb3 · 25-04-2012 10:05am

€120k joint though - if one of them loses their job thats only €60k. Wouldnt like to try service a €350k mortgage on €60k.

As ted1 alludes to I think too much weight is being placed on the second salary. I would at least half it (to take account of either part time basis or creche/minder fees) and then see if your still happy.

As others have also said factor in rising marginal rate, extra costs (property tax, fuel and travel to work costs), and a rise in interest rates after the next 5 years (which i note the op has done).

Man007 · 25-04-2012 10:14am

kennyb3 wrote: »

€120k joint though - if one of them loses their job thats only €60k. Wouldnt like to try service a €350k mortgage on €60k.

As ted1 alludes to I think too much weight is being placed on the second salary. ).

Presuming their take home salary is split 50/50

Also why is too much weight being put on the second salary it's a bit of a sweeping statement to say most women don't go back to work after having kids quite the opposite it's not the 1950,s.

If his wife has no intention of giving up work then why would you not factor the second salary in.

kennyb3 · 25-04-2012 10:17am

Man007 wrote: »

Presuming their take home salary is split 50/50

Also why is too much weight being put on the second salary it's a bit of a sweeping statement to say most women don't go back to work after having kids quite the opposite it's not the 1950,s.

If his wife has no intention of giving up work then why would you not factor the second salary in.

Good point on the 50/50.

It's not just about not going back to work. Its more about one of them possibly losing their jobs.

Back in the good old days everyone based it on two salaries - i don't believe this to be prudent.

ntlbell · 25-04-2012 10:33am

Man007 wrote: »

Presuming their take home salary is split 50/50

Also why is too much weight being put on the second salary it's a bit of a sweeping statement to say most women don't go back to work after having kids quite the opposite it's not the 1950,s.

If his wife has no intention of giving up work then why would you not factor the second salary in.

A lot of the time they do have the intention to go back but once the baby comes along in a lot of circumstances this changes for a number of reasons.

attachment.

creche fee's

some go back part time.

in anycase as there's always the chance of one been out of work at different points if you purchase based on one salary and you have two you can over pay the mortgage and live the lifestyle you wish to live

rather than constant worry and strain that both HAVE to work.

If that's something you care about then by all means base it on two.

The Toffees · 25-04-2012 10:46am

kennyb3 wrote: »

€120k joint though - if one of them loses their job thats only €60k. Wouldnt like to try service a €350k mortgage on €60k.

Thanks again for all the replies. Just in relation to the above, we are both qualified professionals with one of us employed in Public Sector (job security).

noxqs · 25-04-2012 6:56pm

15% @ Current interest rate allowing for minimum doubling - which will likely happen in the course of the mortgage to 30-35% would be reasonable.

Interest rates are at a historic low due to money market stimulation by the ECB - which is mirroring events at the Federal Reserve to some extent (Quantitative Easing aka. Money by Spreadsheet Magic). They will not stay at 3.5% - that is not to say they wont drop lower in the short term, but long term it will rise, there is little doubt about that.

I would not consider the partners salary in the stress test for multiple reasons,

-> Cost of living rises versus drop/stagnation in pay likely on the horizon
--> Energy prices are going up
--> Taxes are going up
--> Water charges
--> Maintenance costs
--> Creche costs?
--> Food prices rising
--> Interest rate increases
--> Public sector is far from as secure as people think. I believe it has to cut 7bn in spending next year and the following years. Public sector pay is above private market pay for similar jobs at the moment and this will be cut to par or below as is the european standard. The Troika will demand it.

Given that a job loss + rise in interest rates and energy prices (pushing up everything else) has the potential to be a perfect personal financial storm. I'd be careful. Not to mention houses are still dropping in value so in the short term it is likely to be in negative equity in the first decade of the mortgage due low reductions of the principle versus negative/stagnating house price. And who knows, within that time you may want to move.

Simulate various events in a spreadsheet - its very sobering - then decide yourself how far you are willing to extend yourself.

Adrift · 26-04-2012 8:30am

Here's another opinion for the OP. Myself and the wife took out a mortgage for 370,000 a few years back. Combined income was 90K. No problem servicing the mortgage. She lost her job there a a year and a half ago and I'm currently servicing the mortgage alone, no major issues so far and it's working out at 33% of my salary per month. (I was the higher earner) . Sure, we've cut back on things, but our lives haven't changed that drastically, I'd say we're a lot more sensible now, still manage to get away on breaks, socialise etc, just moderated a little more now.

My point is, if it's the house you really want , which in our case it was - go for it. I view this situation I'm in as temporary, when my wife finds work again we won't know ourselves. I think some of the opinions here are too black and white, it must be encouraged to be sensible, but within reason. If it's a dream home it's worth the bit extra in my opinion.

Man007 · 26-04-2012 11:33am

Adrift wrote: »

Here's another opinion for the OP. Myself and the wife took out a mortgage for 370,000 a few years back. Combined income was 90K. No problem servicing the mortgage. She lost her job there a a year and a half ago and I'm currently servicing the mortgage alone, no major issues so far and it's working out at 33% of my salary per month. (I was the higher earner) . Sure, we've cut back on things, but our lives haven't changed that drastically, I'd say we're a lot more sensible now, still manage to get away on breaks, socialise etc, just moderated a little more now.

My point is, if it's the house you really want , which in our case it was - go for it. I view this situation I'm in as temporary, when my wife finds work again we won't know ourselves. I think some of the opinions here are too black and white, it must be encouraged to be sensible, but within reason. If it's a dream home it's worth the bit extra in my opinion.

Exactly you are living proof that if you want something you can make it work whatever the circumstances within reason of course.

A lot of people want an easy life as in very comfortable mortgage mediocre house I'm of the opinion that you should always try to push yourself to get the best and what you want yes your mortgage may be higher but you have the house you want and the encouragement to do better and get that better job or promotion etc instead of settling for comfortable.

ntlbell · 26-04-2012 11:46am

Man007 wrote: »

Exactly you are living proof that if you want something you can make it work whatever the circumstances within reason of course.

A lot of people want an easy life as in very comfortable mortgage mediocre house I'm of the opinion that you should always try to push yourself to get the best and what you want yes your mortgage may be higher but you have the house you want and the encouragement to do better and get that better job or promotion etc instead of settling for comfortable.

If it's an easy life or not why do you care? what's a mediocre home?

It's not the bricks and mortar that make a home and there's a lot more to a home than having it planted in a foxrock cul de sac.

You could buy a "medicore" 4 bedroom house in the arse of tyrrelstown for nearly 800k

Is this good enough for you?

It's not "settling" if you're happy. it's not settleing when you can't sleep a wink at night because you can't afford your mortage anymore.

2006 is long gone.

meanwhile in the real world...

maxpowers · 26-04-2012 11:50am

ntlbell wrote: »

If it's an easy life or not why do you care? what's a mediocre home?

It's not the bricks and mortar that make a home and there's a lot more to a home than having it planted in a foxrock cul de sac.

You could buy a "medicore" 4 bedroom house in the arse of tyrrelstown for nearly 800k

Is this good enough for you?

It's not "settling" if you're happy. it's not settleing when you can't sleep a wink at night because you can't afford your mortage anymore.

2006 is long gone.

meanwhile in the real world...

god bless us all if it ever costs 800k for a bog standard gaff in Tyrellstown!:D

ntlbell · 26-04-2012 11:52am

maxpowers wrote: »

god bless us all if it ever costs 800k for a bog standard gaff in Tyrellstown!:D

It did I know a guy still crying into his breakfast every morning

Has a lovely kitchen tho :pac:

maxpowers · 26-04-2012 11:57am

ntlbell wrote: »

It did I know a guy still crying into his breakfast every morning

Has a lovely kitchen tho :pac:

poor fella - it makes me shudder just thinking about it. god knows how he must feel

How much of Net Income should you pay towards Mortgage.

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