There is a limit established by law, that the monthly instalment you pay on any loan, should nor surpass a certain amount of your gross monthly income. How much is it and how much does it affect the outcome of the loan? Can't I determine how much I can spare to pay for the instalments?

 

Some Wise Guys

Some wise guys called "statisticians" have determined that historically, people who have a monthly payment on housing or loans that is above 30% of their income generally have money problems at some point during the progress of the payments. Whether it is for rent or mortgage, it is the same thing. They have calculated that figure and it was taken as good.

 

Other Wise Guys

Other wise guys called psychologists have determined something else: The greater the income, the more people spend. They hardly save. So, leisure expenses grow as their income grows, leaving around the same proportion of their income for housing: Around 30%.

 

Both Things Added Up

The addition of both factors, gives a safe number of not more than 33% of your income that can be spent on loan payments, especially for mortgage loans, which are regularly the highest you can get.

 

But You Have A "Special" Situation

Your combined family income is, say, $7,000. You know positively that you can live well with $5,000 in the area in which you live, and want to get through with your mortgage loan as soon as possible. So, you calculate 30% of the 5,000 which is 1,500, plus the 2,000 extra makes 3,500. If you were to get a loan for all that amount, what do you think would happen?

One day you might discover that your credit card debt is getting out of hand, because you are so tight around the budget. Or you could think, "Wow, I'm earning 7 grand and I can't buy this or that?" You begin to get so tired of having so much money going towards your loan payments that either you begin to delay them or think of refinancing for a longer term. And this is not always possible. But let's leave it at that.

 

Safe Measure

Reduce the monthly payments up to a sum that will allow you to make other expenses without jeopardizing the loan, as well as having a little extra in case some unexpected expense appears. And my loan?

 

The Solution To This

There is an easy solution to get what you want, but at the same time you will be able to back off, should there be any unforeseen expenditure. And it's very simple. Let the lender and the law have their figures, making it safer for them and for you as well. With the money you consider "left over", you can make extra payments, that do not oblige you to keep up if you eventually want to use it for something else.

Cut the extra payment just once and you begin to feel that your loan is beginning to get behind hand and you will resume the extra payments the following month. But the important thing here is that there is no obligation. You are doing it of your own free will, using the cash you can spare to get over with the loan as fast as possible, your original desire.