Determining Your Maximum Mortgage: Key Factors to Consider
Buying a home is a big financial decision, and understanding your maximum mortgage is an important step in the process. Your maximum mortgage is determined by several factors, including your gross income, mortgage interest rate, loan-to-value ratio, monthly expenses, and housing expense. In this guide, we’ll dive into each of these factors to help you better understand how to determine your maximum mortgage.
Your gross income is the foundation of determining your maximum mortgage. This is because your maximum mortgage is determined by your “loan to income” ratio, which balances the loan amount and your gross income. If you have a permanent job, your gross income will include your salary, vacation pay, and fixed thirteenth-month or end-of-year allowance. However, if you have a non-permanent contract, your gross income will be calculated differently and may take into account additional supplements such as overtime or a variable bonus. It’s important to have a conversation with your mortgage advisor to understand how your gross income will be calculated.
While a low mortgage rate is desirable, it’s only advantageous if the interest rate is fixed for at least 10 years. If the fixed-interest period is shorter, it can result in a lower maximum mortgage amount. This is because if you secure the interest rate for less than 10 years, your maximum mortgage will not be based on the actual interest rate, but instead on a reference rate of 5% (which is reevaluated quarterly by the AFM). This is to protect the bank from increased risk, as your monthly payments may significantly increase after the fixed-interest period. To ensure that you can continue to make payments after the fixed-interest period, the bank will use the reference rate to estimate higher monthly expenses.
The “loan-to-value” ratio is another important factor in determining your maximum mortgage. This ratio balances the mortgage amount and the value of the property you want to purchase. You could borrow up to 100% of the property value. This means that the value of your desired home is a crucial factor in determining the size of your mortgage and the amount of personal investment required to purchase the property. If you plan to renovate the home or invest in sustainability measures, consider exploring the option of a construction loan and energy-efficient provisions.
Your monthly expenses play a significant role in determining your maximum mortgage, as they affect the portion of your income that is available for mortgage payments. This includes:
These financial obligations are typically recorded by the Dutch Credit Registration Agency (BKR). You can access your credit registration for free. It is recommended to check your BKR information before applying for a mortgage. However, please note that not all financial obligations are recorded by the BKR. It’s important to be transparent with your mortgage advisor about all of your expenses to avoid any issues later on if any financial obligations are not disclosed.
The housing expense is an important but often overlooked factor that affects the level of your mortgage. The housing expense is the maximum percentage of your gross means-tested income that you can allocate towards mortgage repayment (including interest).
The housing expense depends on your income (and your partner’s income, if applicable), the actual mortgage interest rate, the fixed-interest period you choose, and whether you are retired. All of these factors influence the level of your housing expense.
There are multiple interconnected factors that contribute to determining the maximum amount of mortgage that you can get. While our calculation tool provides an estimate, it’s advisable to schedule a meeting with a mortgage advisor for a precise calculation. A&H Finance is pleased to offer you a no-obligation consultation to assist you in navigating the specifics.
Use our tool and immediately see the maximum mortgage you can get.
In 2025 the energy label will have a major influence on the maximum amount you can borrow.
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