The repayment must therefore also be included in the monthly budget and the more you have to repay, the less money you have to transfer to another.
Before the repayment requirement came, it was common for people not to repay / pay off their mortgages at all. They either thought it was too expensive or that money could be spent on better things. With the amortization requirement, you have no choice and have to adapt.
The new amortization requirement is based on the old one
Most people may have a pretty good look at the old repayment requirement, but I still wanted to go through what it means, because the new rules are based on the existing ones. The new amortization requirement will come into force as early as March 2018.
With the new rules, a debt ceiling is introduced which affects the level of repayment. If your loan amounts to more than 4.5 times your gross salary (pre-tax salary), you must repay an additional 1 percent more than the old levels. This means that you who have a loan-to-value ratio of 70% or more must repay 2 + 1% per annum, a loan-to-value ratio of 50 – 70% must repay 1 + 1% and everyone who has a 50% loan-to-value ratio must repay 1%.
This means that both you who have a higher loan-to-value ratio (which most people who take out a mortgage) have to repay as much as 3% annually, and this also means that even if you would have come down to a low loan-to-value ratio below 50%, you will You are still not completely off to pay off your mortgage. However, it is unlikely that those who have such a low loan-to-value ratio will have such a big problem with amortizing any percentage.
Of course, those who will be most affected are those who have to repay 3%, which is probably the vast majority. It is most common to have an 80-85% loan-to-value ratio on a new mortgage if you have not been able to save a lot of money together to invest in the cash deposit or buy a really cheap home.
What if you count on it?
The first thing that is interesting is probably where the limit goes to even take on the tougher amortization requirements. What you need to spend on an additional percentage is that you have a loan that exceeds 4.5 times the gross salary per year.
If we say that you two are borrowing together and both have USD 30,000 in pre-tax salary, then together you earn USD 720,000 in one year. You can then borrow up to USD 3,240,000 before being forced to further repay. If we expect you to borrow at 85% of the value of the home, you can then buy a home for about USD 3,800,000 at most.
If you earn less together or if you are lonely and want to borrow, then you must of course recalculate it on the salary that is available. If you both have USD 20,000 in salary, that would mean that you can borrow up to USD 2,160,000 before the tougher amortization rules start to apply, which means that you can buy housing for just under USD 2,550,000 with an 85% loan-to-value ratio.
If we instead look at an example for the one who is forced to the tougher percentages, it looks as follows. If you take out a loan of USD 2,500,000 with a loan-to-value ratio exceeding 70%, the old repayment requirement would mean that you have to repay approximately USD 4,160 every month. If you then have to repay one percent extra, it would be USD 6,250.
There is thus a third more to amortize and about USD 2,000 more per month to be paid out in this particular example. Of course, the bigger the loan, the more it will be in USD. For some it may be quiet and there is money to take away in the monthly budget, but for many it can probably affect a lot.
How does the new amortization requirement strike?
Unfortunately, it feels like this requirement, just as it did before, mainly strikes against certain groups. Of course, there is a good idea behind – preventing people from borrowing more than they should – and it also works perfectly well on that point. Furthermore, it is never wrong to repay since the mortgage loan is not a bad thing, but a good thing that slowly but surely improves your finances.
BUT at the same time, it gets a little skewed in such a way that some become more vulnerable than others. These are the people who are trying / want to enter the housing market and are going to buy their first home, the younger ones who want jobs in slightly larger cities and need to buy a home and those who may not yet have built up their salary too much who get stuck in The net.