Mortgage affordability and repayment capacity

You have been on track to purchase your own home for several months now. However, a critical aspect of mortgage lending has caught your attention: the term “repayment capacity.” We will explain exactly what this expression means and why it is so vital to the approval of your mortgage application.

Repayment capacity: what does it entail?

Repayment capacity serves as evidence that a mortgage applicant can meet their future mortgage obligations. The lending institution is also required to subject the loan application to a stress test to ensure that the borrower can withstand future interest rate hikes. In doing so, the lender aims to verify that you can comfortably manage your mortgage payments. Ultimately, you need sufficient funds for your cost of living, and mortgage lenders must be certain that you have enough liquidity to cover your daily expenses and repay your loan without facing undue financial hardship.

How is debt repayment capacity calculated?

So, you are wondering what the criteria for repayment capacity are. What steps can you take to prove you are able to repay a mortgage? In fact, there are four key actions that will help demonstrate your ability to meet these obligations:

• Monthly savings
• Rent must be paid and verifiable via a bank account (maintaining a written record of rent payments is essential).
• The monthly repayment on an existing loan that will be paid off prior to the mortgage commencement.
• If you live at home and provide financial support to your parents, it is advisable to document these payments through a bank account (similar to a rent payment).

Fundamentally, these actions will demonstrate to a mortgage advisor that you will be able to meet your future mortgage repayments when the time comes. Repayment capacity is typically assessed over a period of several months. For each month, you must prove that, between your rent and your savings, you are setting aside a fixed amount of money that would be equal to or greater than a monthly mortgage payment.

How much savings do I need to demonstrate my repayment capacity?

You should consult a mortgage broker and use an online simulator to determine exactly how much you can borrow, your loan term, and your future monthly payments. Even cutting back on as little as €50 per week can significantly impact your repayment capacity and, ultimately, your loan application.

What factors can affect repayment capacity?

If you have existing loans or credit card balances, securing a mortgage may be slightly more challenging, as monthly repayments will be deducted from your qualifying income. However, using the six months leading up to your mortgage application to reduce or clear your debts is another effective way to demonstrate your repayment capacity. Mortgage lenders want to ensure that you are not only eligible for the loan but also that you possess a strong credit history and a stable financial position.

Why is it necessary to demonstrate creditworthiness?

It is essential to demonstrate to your lender that you are capable of repaying the loan you are requesting. The risk is quite simply that they may refuse to approve the loan, effectively ending any chance of homeownership or securing financing through a home equity mortgage. Furthermore, if you fail to prove your repayment capacity or if your financial situation is not convincing, you will have little chance of securing a low interest rate on your mortgage. For more details regarding mortgage applications, please visit www.financementhypo.be.