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Do you know where does the 28/36 rule? If you have already applied for a mortgage, you may well have questioned whether the rule of 28/36 debt to income ratio came mortgage broker told him. And if it makes sense … Read on to discover some surprising facts.
When you apply for a mortgage loan, banks generally calculate your debt-income ratio. The idea is that your total monthly repayments should not exceed a certain threshold in relation to their income.
And there are two numbers. The first door on your housing costs. Your monthly payments toward principal, interest, taxes and insurance for your home should not exceed 28% of your gross income.
The second issue deals with the total monthly payment of debts, including credit card payments, car payments, other loans, payments and housing. Must be below 36% of your gross income.
But when these rules come from? After some research, this is what happened to me:
Once your mortgage has been created by a mortgage company, which is usually sold an organization like Fannie Mae or Freddie Mac These organizations are sponsored by GSE or government entities, and as such must meet GSE standards regarding what they can buy mortgages. These are not standards set by Fannie or Freddie, but some bureaucrats the government, which did the math and understand these relations of income.
Now, here is what kind of thought went into these rules: It is all about mitigation from (decrease) in risk. Who? Who owns the loans!
The most loans do not stay with the bank that lent it. Most sold. And investors who buy them want to make money and minimize their risks.
Curiously, there are two conflicting risks that can affect the profitability of loans:
First, there is a risk of default. This means that the homeowner can no longer meet payments debt and mortgage defaults. If this happens, the investor can lose money.
Secondly, however, is a very different risk – the risk of prepayment. This means that the owner of the house in anticipation of mortgage loans, which saves a lot of interest, the interest that the investor may not get.
So the 28/36 rule was obtained in an effort to find a balance between the amount a landlord can take as no debt default on the loan, but also to make sure you have enough debt so that shall not be liable to repay the loan early.
And the 36% gross income is a substantial amount of money. In the 1950s, you might think you're on the verge of a catastrophe if it had a total debt of more than 25% of their monthly income overall. In fact, during the fifties, much higher fees were the norm (up to 50% or more).
Now the trend is to borrow as much as possible while still being able to make payments. It is a system that is designed to keep us in debt forever. Everyone has seen that we can carry. But do not follow this game.
I think it is time to rewrite the rules – to free up money so we can create wealth for ourselves. The fact that we can bank 36% of the debt does not mean that really should be that much of the debt. We can reduce this ratio – the higher the better – and all that we do not pay creditors, can we and invest them for our own financial future.
The best way to do this? Get a plan. Increase your income and pay the debt. Keep track of your progress and give yourself a pat on the back as big as its debt / income fall month after month – and their place of investment.
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Article Source: ArticlesBase.com – The Truth About the Credit Crunch – Revisiting the 28/36 Debt-to-Income Ratio Rule
