I'm back, and it only makes sense to start with a post about a mortgage calculator after a six month break. Remember the buy vs rent calculator? Well this is similar except the scary thing is I don't think it's broken.
Mike from the Albert Bubble blog commented on this mortgage calculator from President's Choice Financial.
How much can I afford?
I was shocked at the vast sums of money one could qualify for based on a 35 year amortization and a 2.25% VRM. Consider 3 cases:
Debt payments: $0
Pre-qualified for a $391,970 mortgage! It was limited *not* by the income, but by requiring a 5% down payment.
Debt payments: $100/month credit card
Pre-qualified for a $711,371 mortgage! The reason one can get qualified for so much money is it uses a rate of 3.64%.
Debt payments: $100/month credit card +
Debt payments: $300/month auto loan
Pre-qualified for a $ 1,058,721.73 mortgage!
Right question. Wrong answer.
3x income is probably a more reasonable measure and allows for more normal interest rates and some discretionary income.