How to calculate the debt ratio?

Because taking out a home loan or car loan involves your finances over a long period, it is important that your debt ratio is below 33%. Banks consider that a higher level of debt poses a significant risk for them of default. And for you, a risk of debt, even over-indebtedness. So how do you calculate your credit debt ratio? Explanations.

Why calculate a credit debt ratio?

Why calculate a credit debt ratio?

The notion of debt is essential when you plan to apply for a loan from a bank. Why? Quite simply because it allows the latter to assess the feasibility of your project by verifying that this loan will not lead you into a financially dangerous situation, even a situation of over-indebtedness. This calculation makes it possible to determine the total amount that it will be possible for you to contract in debts, but not only: in fact, the debt ratio also affects the interest rate on the credit.

Note that knowing how to calculate your mortgage loan debt rate, your consumer credit debt rate, or even your car loan debt rate, also has the advantage of having a precise overview of the reliability of your project. In addition, when you go to your bank advisor to apply for your credit, you will approach this interview much more calmly, since you will know in advance what you can claim.

But let’s go back: what is the debt ratio? It is simply the ratio between all of your expenses and all of your net fixed income, in other words the amount of expenses divided by that of income. This calculation measures the proportion occupied by the costs of a borrower in his budget. The debt ratio expressing the share of income devoted to loan repayments.

Depending on the results of this calculation, the authorized debt ratio can thus be increased or decreased. In the event that you have comfortable income, in other words with a high ” living income”, the bank will easily accept a debt ratio of over 33%, even going up to 35% or more. If you have more modest or irregular income, it will be difficult for you to obtain a loan representing more than 30% of debt. For households in difficulty it may even be necessary to count on the granting of a credit with a debt ratio of less than 25%!

Choose an acceptable debt ratio

Choose an acceptable debt ratio

Is there a threshold not to cross? Yes! There is no legal rule fixing the maximum debt ratio, that is to say the share of your income spent on repaying your loan. However, for a mortgage or a car loan, it is strongly recommended, as we have already mentioned, to limit or even decrease your debt ratio. In general, the banks consider that it is not reasonable to go into debt beyond 33%. Of course, this percentage is not a regulatory rate, however it remains the one most used by banks.

Note that the banks’ analysis of this risk is not based solely on the debt ratio. It is also based on the study of the profile of the borrower and more particularly on his “remainder to live” and his “family quotient”.

Calculate the debt ratio: the rule to know

Calculate the debt ratio: the rule to know

If free debt rate calculators are easily accessible online (you just have to enter your figures and you instantly have the result in percentage) it is just as simple to perform the calculation yourself.

To calculate the amount you could borrow, here is the formula for calculating the debt ratio to know:

1. Add up your fixed income.

The fixed income taken into account to calculate the debt ratio are as follows:

  • Net wages and contractual bonuses or 13th month.
  • Non-salaried professional income received by farmers, traders, artisans and liberal professions.
  • Alimony, retirement pension.

2. Count the charges:

  • rent;
  • credits in progress;
  • loans;
  • pensions.

3. Multiply the amount of expenses by 100, then divide the total by the amount of income. There you have your debt ratio.

To keep in mind: Debt ratio = amount of loan (s) × 100 ÷ net income

In most cases if the difference exceeds 33%, the credit organizations consider that this jeopardizes the financial balance of your budget and that your ability to repay will be uncertain. For many households, this leads to over-indebtedness.

Online simulation: if you choose to perform your calculation using an online simulator, you will need to enter your regular income and that of your spouse (wages, perceived rents, alimony, retirement pensions, allowances, aids social security) as well as your expenses (consumer credit in progress, pensions paid).

Calculate your monthly repayment capacity

Calculate your monthly repayment capacity

What is your monthly repayment capacity? This is the maximum amount of the monthly payment that you can repay. It includes the loaned capital to be repaid, bank interest and the cost of borrower insurance (compulsory). If you apply a maximum rate of 33% of debt, here is how to calculate your repayment capacity: add your net income and multiply it by 33% then remove your current borrowing costs (sum of the monthly payments of the loans and the proposed loan).

To remember: repayment capacity = (net income × 33%) – (current borrowing charge)

The debt ratio: an essential indicator

The debt ratio: an essential indicator

In summary, the debt ratio is an essential indicator for knowing your borrowing possibilities. The calculation of your debt ratio by the bank (or by yourself!) Is none other than the calculation of your borrowing capacity to ensure that you will be able to repay your credit, only it is a mortgage, a car loan or a consumer loan.

Online mortgage loan rate calculation

Choosing an online loan calculation system is undoubtedly one of the priorities for anyone who needs credit. In our article you will find out how to perform Government Agency online mortgage payment calculation in a few simple steps without having to enter any login credentials.

How to perform the online calculation of the mortgage

How to perform the online calculation of the mortgage

The Government Agency mortgage installment calculation we will discuss is the official one provided by the Institute website. To find this service, simply reach the main page of the portal and then locate the “All services” link. Clicking on this item will open a page that collects the various services presented by the social security institution.

In the “theme” filter, the “Mortgages” option will be selected and the portal features relevant to these credit lines will appear. Scrolling through the services you will have to identify the one relating to the simulation of the mortgage loan amortization plan.

Clicking on this element will open the section of the Social Institute site relevant to the simulation. The user will have to press on the link ” Proceed with the simulation ” to obtain personalized refund plans.

Online first home mortgage simulation

Online first home mortgage simulation

The simulation involves the insertion of the type of rate, the value of the house, the sum covered by the credit line and the duration of the repayment plan. By clicking on the “Calculate” button, the site will offer a detailed picture of the depreciation plan.

The rate, the various installments, the relative deadlines, the incidence of the interest and the capital portion will be reported.

In addition to the Government Agency mortgage installment calculation, we also have, in this same section of the Social Institute website (just use the menu on the left), the simulation of early repayment.

Purchase of the first mortgage home Social Institute ex Government Agency

Purchase of the first mortgage home Social Institute ex Government Agency

The Government Agency Social Institute mortgage is a solution designed especially for needs related to the first home. In the event of construction or purchase, up to 300 thousand USD are provided while for the renovation and other works up to 150 thousand USD are available, in compliance with the limit of 40% of the value of the home.

As for the repayment term, it starts from a minimum threshold of 10 up to a maximum limit of 30 years. There are two rate options, fixed or variable. The fixed rate is calculated with respect to the loan to value (LTV) system while the variable rate corresponds to the 6-month Euribor plus a spread of 2%.

The target audience for this loan is represented by employees and pensioners enrolled in the unitary management of credit and social benefits.