Is Your Mortgage Payment Too High? Here’s How to Find Out

When you’re considering buying a new home, it’s important to factor in all of the costs involved, including your mortgage payment. But how do you know if your mortgage payment is too high?

There are a few different ways to measure whether your mortgage payment is affordable. One way is to look at your debt-to-income ratio (DTI). Your DTI is the percentage of your monthly income that goes towards paying off debt. Lenders typically want to see a DTI of 36% or less before approving a mortgage.

Another way to measure whether your mortgage payment is affordable is to look at your housing expense ratio. Your housing expense ratio is the percentage of your monthly income that goes towards housing costs, including your mortgage payment, property taxes, and homeowners insurance. Lenders typically want to see a housing expense ratio of 28% or less before approving a mortgage.

If your DTI or housing expense ratio is too high, it could be a sign that your mortgage payment is too high. You may want to consider looking for a less expensive home or getting a lower interest rate on your mortgage.

Here are some additional tips for keeping your mortgage payment affordable:

Make a larger down payment. The more money you put down on your home, the lower your monthly mortgage payment will be.
Get a longer loan term. A longer loan term will result in a lower monthly payment, but you’ll pay more interest over the life of the loan.
Refinance your mortgage. If interest rates have gone down since you got your mortgage, you may be able to refinance your loan to get a lower interest rate and monthly payment.

If you’re worried that your mortgage payment is too high, talk to a licensed mortgage professional. They can help you determine if your mortgage is affordable and recommend ways to reduce your monthly payment.

Case Study

The post above is from a couple who is considering buying a new home. They are currently making $220,000 per year and have a car payment of $850 per month. They are considering buying a new home that costs $500,000 and has an interest rate of 6%.

The couple’s DTI is currently 38%, which is slightly above the recommended 36% threshold. If they buy the new home, their DTI will increase to 45%. This is a significant increase, and it could make it difficult for them to qualify for a mortgage.

The couple’s housing expense ratio is currently 25%, which is within the recommended 28% threshold. If they buy the new home, their housing expense ratio will increase to 32%. This is a moderate increase, and it is unlikely to cause them any financial hardship.

Overall, the couple’s mortgage payment is likely to be affordable, but they should be aware of the potential risks before making a decision. They should talk to a licensed mortgage professional to get more information about their options and to make sure that they are making the best decision for their financial situation.