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We all know the term maximum mortgage, but exactly what it means is not entirely clear to everyone.
Below, we explain in detail the process of a mortgage application and give clear examples. Furthermore, we list all the factors that can affect it so you can’t forget anything when you apply.
How is your maximum mortgage determined?
The definition of maximum mortgage is as follows: The maximum finance charge is the portion of income that is allowed to be spent on mortgage expenses at most.
It is calculated based on the consumer’s key income and the current mortgage rate.
So the banks want to know what your gross income is and would like to see a recent pay stub of this. This allows the bank to estimate whether you have enough money coming in to pay your monthly expenses.
If you are an entrepreneur or self-employed person, there is even more to determine your income.
Also read: how do you start a mortgage?
Current mortgage rates
Another important factor in determining your maximum mortgage is the state of mortgage interest rates.
It is best when it is low, because then you will have to pay less interest on your borrowed money. Just make sure you take out your loan for at least 10 years, otherwise a lower maximum mortgage amount may come out of the calculation.
This is determined as follows. If you fix your interest rate for less than 10 years, your maximum mortgage amount will not be calculated using the current interest rate, but with a test interest rate.
After the fixed-interest period expires, your monthly expenses may in fact rise dramatically because of increased mortgage rates. The risk for the bank is then higher. And because the bank wants to be sure that you can continue to pay your mortgage even after the fixed-interest period, they estimate monthly costs to be much higher using the test interest rate.
So in doing so, the following question is very important to many people:
So how much of my own money do I need for a mortgage?
In the Netherlands you can borrow a maximum of 100% of the house value. This means you need your own money for additional buyer’s costs, such as transfer tax, notary fees and appraisal costs.
Value of the house
So let’s first look at the actual value of the house you have your eye on.
How much will you take out a mortgage for and what is the value of the home? In any case, you cannot borrow more than the house you have your eye on is worth. And to determine the current value of the house, you can hire an appraiser who will then issue an appraisal report.
So the value of your future home has a lot of influence on the amount of your mortgage as well as the amount of your own money you will need to buy the house.
And do you still want to do odd jobs, renovate and/or make things more sustainable? Then it is possible to opt for a construction deposit. A building deposit is a special, escrow account where you set aside an amount of money for a planned remodel or new construction.
It is part of your mortgage. From the construction deposit, you pay the invoices for the work and materials.
Financial obligations
The bank also wants to know from you if you have any financial obligations that could affect your monthly spending amount.
These could include the following: student debt, being in the red at the bank, a credit card where you can repay in instalments (a kind of loan), a smartphone on installment or a private lease contract of, for example, a car.
These all seem like innocuous contracts but they actually affect your monthly expenses and therefore what maximum amount you can borrow.
This is because you get, the often well-known, BKR registration behind your name and this can cause restrictions when applying for your mortgage.
Living lum sum
This one is a little less well-known but no less important: the housing ratio.
The housing ratio is the maximum percentage of your gross income that you can spend on paying off your mortgage (including interest). The housing ratio depends on the following: your income and that of your partner, if any, the actual mortgage interest rate, the fixed-rate period you choose and whether you are retired.
The housing quote is reset annually. This quote exists because in addition to your housing costs, you need to keep enough money for your groceries, healthcare costs, and other living expenses.
This way a lender cannot lend more than what is affordable for an average family. This reduces the risk of financial problems for both you and the lender.
Loan Standard
To prevent you from borrowing too much and getting into financial trouble, the bank also looks at your income and your fixed expenses.
They also determine how much money you should have left over after paying your monthly principal and interest each month to live on. The latter is called the loan standard.
Calculate maximum mortgage
The maximum amount you can borrow depends on your personal situation and other factors.
A mortgage broker can help you calculate your maximum borrowing capacity.
Mortgage2Go
Do you have certainty about what you can borrow maximum for a mortgage and want to complete the financing before you start house hunting?
Then Mortgage2Go offers the solution. With a pre-checked mortgage, you already have the financing in place and are sure that you can afford your dream home.
Do you meet the requirements? Start an application.
Relevant information:
Checklist: what do you need for a mortgage application?
