The way in which a client’s creditworthiness is assessed varies from bank to bank. Nevertheless, it is possible to quantify in general how the client’s liabilities affect the potential amount of his mortgage. Let’s give a very simplified example. The bank will allow the client to draw such a loan, where 50% of his income will be used for installments. For example, a client has a monthly income of USD 20,000 and the bank approves a mortgage with a payment of USD 10,000 per month. With a maturity of 30 years at the rate of 2.7% p. A. It is a loan of about 2 470 000 dollars.
However, if the client is already repaying a consumer loan with a monthly payment of 500 dollars, this means that the bank will only allow him to repay only 9 500 dollars. Under the same conditions, this corresponds to a loan of about USD 2,340,000. So we can see that the payment of 500 dollars limited the available amount of the mortgage loan by 130 000 USD. It has its logic, because the 500 dollars per month for 30 years is a total of 180 000 dollars, which corresponds reasonably well with the amount of 130 000 dollars principal, in addition to which interest must be added. Reducing the total amount of credit therefore makes sense.
As far as credit cards and overdrafts are concerned
Some banks do not deal with them at all. Of course, it is important that they are repaid correctly and that their limits are within reasonable and healthy limits. Then the credit card does not have to be counted to the creditworthiness at all and as if it did not exist.
Banks that take credit cards and authorized overdrafts into account in assessing their creditworthiness consider the set percentage of the credit line of these liabilities as a monthly cost of the client. And it does not matter whether the client actually draws money from the credit card or not. Regardless of the actual credit card balance, the bank proceeds from the fact that today the client does not have to draw anything, but tomorrow he can calmly use all available funds. Suddenly, the client might find himself in a situation where the sum of his monthly payments increases by thousands, which the banks are trying to prevent due to his ability to repay.
The market is offsetting 5% of the card limit
Respectively. 8.3% overdraft. For example, for a credit card with a limit of 150,000 dollars, the amount is 7,500 dollars per month. From the bank’s point of view, the mortgage applicant is a client who pays USD 7,500 per month. This is quite strict and properly waving.
The specific calculation for one bank is based on the fact that a client with a net income of USD 50,000 a month without liabilities reaches a loan of approximately USD 7.2 million with a maturity of 30 years. However, if he has a credit card with a limit of 150 thousand dollars, he will reach approximately only 5.4 million dollars, which is 1.8 million less. It is quite a difference and is due to long maturity.
Consider the same mortgage with a maturity of 10 years
A client without a credit card would reach approximately USD 3.1 million. Due to the shorter maturity, the repayment is higher, and therefore the burden on the debtor is higher, thus reaching a lower mortgage. If he again had a credit card with a limit of 150 thousand dollars, he could borrow only 2.3 million dollars. The difference is only 0.8 million dollars and compared to the first case, it seems that it is not too much. In both cases, however, the credit card will reduce the potential loan amount by approximately 25%, which can be a major obstacle to the acquisition of own housing.