28/36 Mortgage Rule Calculator

1. What is the 28/36 Mortgage Rule Calculator?

Definition: The 28/36 Mortgage Rule Calculator evaluates whether your debt levels meet the 28/36 rule, a guideline used by lenders to assess mortgage affordability. It calculates the front-end ratio (housing costs to income) and back-end ratio (total debt to income).

Purpose: This tool helps individuals determine if their current debts are within safe limits for mortgage approval or additional borrowing, ensuring financial stability.

2. How Does the Calculator Work?

The calculator uses the following formulas:

$ \text{Front-End Ratio} = \frac{H}{I} \times 100\% $

$ D = H + O $

$ \text{Back-End Ratio} = \frac{D}{I} \times 100\% $

Where:

$ H $: Monthly housing costs ($);
$ I $: Monthly income ($);
$ O $: Monthly other debts ($);
$ D $: Total monthly debt ($).

Steps:

Enter your monthly income, housing costs, and other debts.
Calculate the front-end ratio by dividing housing costs by income and multiplying by 100.
Calculate total debt by adding housing costs and other debts.
Calculate the back-end ratio by dividing total debt by income and multiplying by 100.
Check if the front-end ratio is ≤ 28% and the back-end ratio is ≤ 36%.
Display the ratios, total debt, and compliance status.

3. Importance of the 28/36 Mortgage Rule Calculation

Calculating the 28/36 ratios is essential for:

Mortgage Approval: Lenders use the 28/36 rule to assess your ability to repay a mortgage, increasing approval chances if compliant.
Financial Health: Ensures your debt levels are manageable, preventing overextension.
Borrowing Decisions: Helps determine if you can safely take on additional loans without risking financial strain.

4. Using the Calculator

Example: Check if your debts comply with the 28/36 rule with a monthly income of $4000, housing costs of $900, and other debts of $300:

Front-End Ratio: $ \frac{900}{4000} \times 100 = 22.5\% $ (below 28%);
Total Debt: $ 900 + 300 = 1200 $;
Back-End Ratio: $ \frac{1200}{4000} \times 100 = 30\% $ (below 36%);
Result: Your debts comply with the 28/36 rule, indicating room for additional borrowing.

5. Frequently Asked Questions (FAQ)

Q: What is the 28/36 mortgage rule?
A: The 28/36 rule is a lending guideline where housing costs should not exceed 28% of monthly income (front-end ratio), and total debt should not exceed 36% (back-end ratio).

Q: What counts as housing costs?
A: Housing costs include mortgage payments, property taxes, homeowners insurance, and homeowners association fees.

Q: Can I still get a mortgage if I exceed the 28/36 rule?
A: Some lenders may approve loans with higher ratios, but it may require a higher credit score, larger down payment, or compensating factors.