How to calculate a mortgage loan rate?

The debt ratio in France is 33% maximum, here is how to calculate your own debt ratio for the subscription of a mortgage.

Home loan: calculate the debt ratio

Home loan

The debt ratio is one of the most important criteria that is studied by banks and credit organizations that grant mortgages. In France, the financial authorities authorize a maximum debt ratio of 33%, that is to say that one cannot devote more than a third of its income to the repayment of debts.

The formula for calculating the debt ratio of a home loan remains relatively simple, we divide the amount of the monthly payment in relation to the household income, then multiply by a hundred to have a percentage: Monthly payment / Income X 100 . There are two ways to calculate a debt ratio for a mortgage, we can first calculate the maximum amount that can be spent on credit repayments, we can also calculate the current debt of a borrower.

Calculate the debt with the maximum monthly payment

For example, a couple receives total income of 3000 us dollars monthly, Mr. and Mrs. each receive income of 1500 us dollars net, which amounts to 3000 us dollars net household income. They want to buy a house and would like to have an estimate of the monthly payment that they can reimburse:

  • 3000 X 33% = 990 us dollars

This couple will be able to repay a maximum of 990 us dollars in monthly loans, all types of loans combined, including the mortgage.

Calculate the debt ratio with the current mortgage

For example, a couple receives income of 2,000 us dollars and have a monthly mortgage loan of 454 us dollars. To calculate their debt, just divide 454 us dollars by 2000 and multiply the sum by one hundred to get the percentage:

  • 454/2000 X 100 = 22.70%

The household has a very comfortable debt ratio, since the latter is well below 33%.

Tips to remember about debt with a mortgage

debt

The debt ratio is very useful in the context of a mortgage loan but also in the context of daily financial management. It helps to prevent a complicated financial situation, that is to say that for borrowers who wish to obtain a mortgage, this allows them to be aware of the debt limit and it is advisable to always keep a margin of maneuver by going into debt for example between 25% and 30%.

For households that already have a mortgage, calculating debt regularly helps maintain balance in finance, especially if there are changes in income or new loans have been taken out.

How do you know if your debt is good?

debt

The debt limit is 33% but a household that is located at this limit will not be able to face an unforeseen expenditure or a fall in income, it is this type of situation that can switch into over-indebtedness, which remains an uncomfortable financial situation with significant consequences for the finances of the home.

To keep good management of your finances, you have to keep in mind the debt scale presented like this:

  • 0% to 10%: very comfortable debt ratio
  • 11% to 25%: comfortable debt ratio
  • 26% to 30%: correct debt ratio
  • 31% to 33%: limit debt ratio
  • 34% to 40%: dangerous debt ratio
  • 41% to 50%: over-indebtedness
  • 51% and more: very critical over-indebtedness

Between 0% and 30% of debt, you are in a comfort zone, there is always a risk but having flexibility allows you to anticipate changes in situations, unforeseen expenses and power restore balance in a few months.

Beyond 33% of debt and up to 50%, your situation is abnormal, it is necessary to have recourse to a solution to restore a debt lower than 33%. The repurchase of credit can be a solution to consider in order to reduce the monthly payments and spread the debts.

Beyond 50% indebtedness, it is necessary to turn to the Banque de France to file an over-indebtedness file and set up a recovery program, with in particular the use of a mediator to find solutions to debt repayment.

Simulation of credit buy-back Free & no obligation, get the best rates!

Which bank for a home loan buyout?

There are two types of a bank that can respond to a request to buy back credit. First, we identify the classic banking agencies that we will find in municipalities and agglomerations and offering retail banking. These agencies generally offer the repurchase of a pure mortgage, which is to say only the repurchase of a home loan and no other loan in progress. The idea for bank agencies is to repatriate the borrower’s bank accounts by offering him a more attractive rate than that on the loan he is currently paying back.

 

Mortgage repurchase is found in specialized credit institutions

Mortgage loans

If the borrower wishes to redeem a mortgage and possible consumer loans, he can resort to a transaction called credit consolidation. This solution is mainly offered by credit institutions which are simply subsidiaries of large banking groups. No domiciliation of accounts is requested, the credit institution simply offers the redemption of various debts and the establishment of new financing.

The first fundamental step before orienting your steps to find a bank is quite simple to define the type of financing desired, either a repurchase of mortgage only or a grouping of a mortgage.

 

Bank of credit repurchase: the borrower profile

Bank loans

The search for a bank in terms of repurchase of mortgage will, therefore, depend on the nature of the financing desired, but this is not the only element to take into account, it must also be based on the borrower profile. It is quite naturally the profile that will emerge from a simulation of credit repurchase. Different elements will be taken into account such as the profession (permanent contract, civil servant, retired), the amount of income, the number of people at home, the debt ratio as well as elements specific to the repurchase of a mortgage: duration, rate, amount to be redeemed. All these elements combined with each other will help identify one to several banks can respond favorably to the borrower’s request.

Obviously, the banks have different positions, some will favor the repurchase of long-term loans within particular mortgage guarantees, others will prefer to propose repurchase of a mortgage on a short duration with for example a bank guarantee. The fees and terms may vary from one bank to another, not to mention that each agency has a different commercial policy. It is therefore strongly advised to compare the offers to buy back mortgage loans with the various banks present on the market. This requires an online simulation, it is a naturally free process and without any commitment.

 

The choice of the bank according to the guarantee

The choice of the bank according to the guarantee

The choice of a bank for a buyout of a home loan can also be made depending on the guarantee that will be offered. There are two types of guarantees that can be obtained for a mortgage or a mortgage loan repayment, these are the bank guarantee and the mortgage. Most banks can offer the mortgage guarantee, this consists of placing a mortgage on the borrower’s real estate and performing this procedure with a notary, the only agent approved by the State to carry out a mortgage registration. Simply put, this often involves significant costs. Between the fees of the notary and the registration fees, the invoice can quickly climb.

Some banks will offer both a mortgage and a bank guarantee. The bond is clearly less expensive than a mortgage, but it is more difficult to obtain since it is a surety company that will act as a guarantor for the borrower. If the latter does not manage to repay his monthly payments, it is the surety company which will ensure the repayment of unpaid installments, he will then turn to the borrower to recover the sums due. The advantage of the deposit mainly lies in the possibility of recovering part of the costs when the reimbursement is completed. There is also no “grip” on the property. It is, therefore, necessary to go around the different banks using a credit buyback comparator, which allows directing its request for financing to the right establishment.