How to calculate mortgage repayment ability for first time home-buyer

30-11-2016

Banks always use debt-to-income ratio or debt servicing ratio and mortgage stress test to calculate the mortgage repayment ability of an applicant.

For a residential mortgage applicant that has not owned any property or acted as an obligor/guarantor for a mortgage loan, the total monthly mortgage and credit repayments (or debt servicing ratio) shall not exceed 50% of the monthly income of an applicant.

One has to be aware that in calculating credit exposure, not only scheduled mortgage repayment but also all credit repayments such as personal loans and credit card repayments etc. are included.

Further, if the mortgage interest rate is increased by 3% per annum while the monthly income of the applicant remains unchanged, the aggregate monthly mortgage and credit payment (debt servicing ratio) has to be below 60% of the monthly income of the applicant, which is the stress test on mortgage lending.

For applicant that has already owned a second property or acted as an obligor/guarantor for other mortgage loans, the debt servicing ratio and mortgage stress test will be more stringently applied, in that the debt servicing ratio cannot exceed 40% and the stress test for mortgage lending, if mortgage interest rate is increased by 3%, the debt servicing ratio cannot exceed 50%.

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