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Which mortgage can you afford? The answer to this question depends on various factors, the most important of which are indicated here. |
Own funds available
The buyer is typically required to produce about 15%-20% of the purchase price from his own funds. This money is mainly raised from savings, an inheritance or a pension plan such as an occupational pension. The more money one can put in, the lower the mortgage, thereby reducing the monthly repayment costs.
Required income
You should have sufficient income to cover the monthly interest payments and capital repayments, as well as your family's other fixed costs. Do not forget to allow for future expenditure and investments, such as repair and maintenance costs, buying furniture, appliances or equipment (such as a lawn mower).
It is certainly helpful to keep your monthly mortgage burden low:
- Increase the amount of money that you have put in and lower the mortgage.
- Choose a mortgage over a long term.
- Take time to shop around for the best mortgage deal.
Depending on your personal circumstances, the following option may also be of interest: pay off your mortgage indirectly through an endowment policy (third pillar) or life insurance policy (which is pledged to the bank) by paying savings contributions into one of these. The mortgage is then paid off later on when the endowment policy/life insurance policy matures. The advantage in such an option is that the interest payments on the mortgage and the growing (third pillar) endowment policy are tax-deductible. The disadvantage is that the funds that you take out of your pension plan will not be available to you when you retire. This can have serious implications on your standard of living when you retire.
Value of the property
The size of the mortgage is directly dependent on the value of your house or apartment. The bank will normally lend you 80%-85% of the value, divided into a first mortgage for 65% of the value of the property and a second mortgage for 15%-20% of the value of the property.
Your bank will arrange its own valuation of the property. It may tally with the agreed purchase price or may differ from the purchase price either on the lower or the higher side. Do not waste any time in getting in touch with your bank. First of all, you may change your mind about how much you intend to pay. Also know early about how much financial support you can get.
