How do I know what mortgage I can afford?

The number of mortgages constituted on real estate for residential purposes has grown significantly in the first months of 2022. According to the National Institute of Statistics (INE), in the month of March the number of mortgages on homes registered in the Spanish property registries amounted to 43,378, 17.97% more than the same period of the previous year.

Although the amounts of the mortgages are very varied, the INE reported that the average amount granted also increased considerably this year. In the month of March the figure stood at 145,715 euros, which translates into an increase of 6.5% year-on-year.

Despite the recommendations of the Bank of Spain, many applicants requested mortgage loans that exceeded their borrowing capacity. For this reason, in the first quarter of 2022, 7,965 foreclosures were carried out. The best way to avoid an execution is use a mortgage simulator to determine what mortgage you can afford.

Why should you calculate the maximum mortgage you can afford?

Banks establish the maximum mortgage they can grant to each client based on their current economic solvency and a risk analysis. However, there are personal issues, job expectations and other subjective factors that the entity is unaware of, and that also influence the ability to repay the loan.

Because of this, it is recommended that you proceed with your own analysis taking into account the capital that you have managed to save, your income level, your employment perspective and all the variables that can increase or reduce the money allocated to the mortgage payment. For example, the decision to change jobs, have a child or invest in a business.

How much money should you have saved?

Most banks grant mortgage loans for a maximum of 80% of the appraised value of the property. Therefore, You must have savings equivalent to 20% of the final price to be paid for the property. In addition, it is advisable that you reserve approximately an additional 10% to cover some associated expenses.

What percentage of your income can you mortgage?

According to the general recommendation of the Bank of Spain, indebtedness must not exceed 35% of monthly income. It is important to note that this percentage is not applied only to the mortgage, but to the total number of loans acquired. For example, if you spend 5% of your salary on car payments, you could only apply for a mortgage for the remaining 30%.

How to use a mortgage simulator?

To make an accurate calculation of the mortgage that you can afford, you must use an online mortgage simulator. This tool will help you perform all the accounts automatically and test different combinations of variables to determine which one is the most convenient.

Each online simulator asks for more or less information. However, in most of them you will have to enter some basic information such as the type of home you want to buy, the value of the property, the savings you have, the condition of the property and its location.

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In addition to that, you will have to select the number of years it will take to repay the loan and the interest rate, which can be fixed or variable. Keep in mind that the longer the term, the greater the uncertainty about the return of the money and the higher the total interest that you will have to pay.

Do not commit yourself beyond your real borrowing capacity. If your current salary is not enough to buy the house of your dreams, look for new sources of income, save more money and pay off all your debts before applying for a mortgage.

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