• Question
  • What percentage of my income should be for mortgage payment? What can I do if I am paying more than

    Asked by a 74 year old woman from Troy, MI on 11/27/2012

    What percentage of my income should be for mortgage payment? What can I do if I am paying more than that amount?

  • Categories: Retirement Planning, Budgeting, Housing


  • Editorial 


    San Francisco, CA

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  • Congratulations for asking such a savvy question. The guidelines for what percentage of your income should be directed toward a mortgage payment will vary depending on your individual circumstances.

    The bottom line is that you need adequate income to cover ALL of your expenses -- no matter the percentage. And -- for retirement -- that income is ideally guaranteed for your lifetime -- no matter how long that turns out to be.

    However, here are a few statistics and standard rules of thumb for the ideal income to housing cost ratio:

    -- Most experts quote a range of 25 - 33 percent.

    -- A general rule in qualifying for a home mortgage is that your debt-to-income ratio be no higher than 28/36 percent on conventional loans and 31/43 percent on Federal Housing Authority (FHA) loans. Ratios above this may mean that you will be denied credit or subjected to a higher mortgage interest rate.

    -- According to BankRate: The housing expense, or front-end, ratio shows how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income. To calculate your housing expense ratio, multiply your annual salary by 0.28, then divide by 12 (months). The answer is your maximum housing expense ratio.

    However, when you are retired things are a little different. In retirement you are living on a fixed income -- meaning you won't have more money later to pay off debt. Debt is generally a bad idea in retirement since you are continuing to pay interest but you are not continuing to earn more money than you already have. You might explore the pros and cons of paying off your mortgage debt entirely.

    A good financial advisor could help you navigate these decisions. NewRetirement can help you find an advisor who can offer a free initial consultation. This advisor could walk you through your NewRetirement Calculator results and answer your specific questions.
    Free Consultation: https://www.newretirement.com/free-retirement-consultation.aspx

  • Login to rate this answer:   Answered on 11/30/2012
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.