Maybe, as a lot of people, you have too much debt and you are thinking about home mortgage refinancing to consolidate them. But before to ask your bank, you can look your credit rating allows you to estimate the quality of your financial condition.
Of course, you already know that debts could be a problem and you must solve it, maybe with home mortgage refinancing. But calculating your debt ratio will also tell you how your debt problems is important and if you have to look quickly for refinancing in order not to harm your credit record.
Why would you calculate your credit ratio before to choose home mortgage refinancing? Because it also how banks calculate your debts to ensure your solvency and minimize risk.
How to calculate your debt ratio before consolidate with home mortgage refinancing?
Banks consider two different debt ratios to calculate your credit rating, depending if you are looking for a personal loan or for home mortgage refinancing, for example.
The first debt ratio includes only your expenses related to housing (insurances, taxes, electricity, etc.) This ratio may not exceed 33% of your income, otherwise it show that you cannot afford to refinance your home. But many banks abuse of this rule and agreed to lend more than borrowers were able to repay. This is one cause of the subprime crisis!
The second debt ratio includes your expenses but absolutely all your debts. With the payment of your mortgage loan and other housing expenses, this debt ratio should not exceed 38% of your income.
If you calculate for yourself this debt ratio in order to see if you could afford a new mortgage loan to repay your debts after refinancing, if your ratio exceeds 38%, it means you should not consider borrowing more money!
To calculate your debt ratio, divide the total monthly debt payments by your gross (before taxes)monthly income. (Monthly income is annual divided by 12; not weekly times 4 which short changes you!) Debt payments are minimum required, not how much you actually pay. Payments for phone, utilities, and insurance are generally not included. For more information on this and other information related to the mortgage loan application process see my book “Getting To Closing”.
What they have spent so far has gone to the most unproductive parts of the economy and managed in the most unproductive way possible and the rest they just gave away.