Front-end ratio - 28% rule
Income
$
Housing costs
$
Front-end ratio
%
Back-end ratio - 36% rule
Other debts
$
Total debt
$
Back-end ratio
%

The 28/36 rule calculator is a tool that helps you to check the health of your finances. The 28/36 rule informs what is a safe amount of debt for a person or a household. In other words, it answers the question "how much house can I afford?". If you have a mortgage or just find yourself dreaming about buying a house down the road, this tool is for you.

28/36 mortgage rule consists of two elements - the front-end ratio and the back-end ratio. They are calculated using your income, housing costs and other debts. If you want to know more about the 28/36 rule and how to calculate it read the article below.

What is the 28/36 rule of debt ratio?

28/36 mortgage rule can be helpful for an individual because it is a commonly accepted standard. It is used by banks or other lenders when determining the maximum amount of mortgage you can afford - as fully or partially amortized loan.

The first part of the rule states that the maximum household expenses or housing costs should not be higher than 28 percent of your monthly income. Maximum household expenses typically include principal, interest, taxes and insurance. Because of this they are referred to as PITI:

  • Principal is the part that goes directly toward paying down the mortgage,
  • Interest is the rate the bank charges for lending money,
  • Taxes usually refer to the property tax,
  • Insurance means the homeowner insurance.

Each loan is different and some do not have taxes and insurance included. Depending on your needs, you can enter housing costs as one value in our 28/36 rule calculator or switch to the advanced mode for an individual breakdown of those values. When calculating this, banks typically look at monthly household expenses and monthly gross income. The result they get is called the front-end ratio.

The second part means that total debt a household has, should not exceed 36 percent of its income. Total debt includes previously mentioned housing cost as well as any other debts a household may has, such as a car loan. This ratio of total debt to income is called the back-end ratio.

It is generally assumed that the front-end ratio below 28% and the back-end ratio below 36% allow a household to safely function and have money for needs. Thus the rule tells you exactly "how much mortgage can I afford". Tying a larger part of your income to pay debts, can create an unstable and unhealthy situation. In such case it can be hard to save money or be prepared for any unexpected expense. For a more detailed division check out our debt to income ratio calculator that tells you how profoundly indebted you are.

28/36 rule formula

You know what is 28/36 rule of debt ratio and why it is useful not only for banks, but also helpful for a person. Now, you may wonder how our 28/36 rule calculator works. To calculate "how much mortgage can I afford" you need to provide:

  • income - the money you make working every month. If you know your hourly rate or daily wage, and you would like to know your monthly salary, check out our hourly to salary calculator,
  • housing costs - also known as maximum household expenses. These include the monthly mortgage amount and can be entered as one value or split into separate PITI values in the advanced mode as explained above.
  • other debts includes any other outstanding monthly debt payments such as car loans or credit card payments

You can calculate the first part of the 28/36 rule with the following formula:

front-end ratio = housing costs / income * 100%

Dividing housing costs by income and multiplying by 100% allows you to get the front-end ratio. It tells you what percentage of your income you have to spend on mortgage repayment. The result should not be higher than 28% to follow the 28/36 rule.

On the other hand, the other part of the rule states that the back-end ratio should not be higher than 36%. This informs you what percentage of your income goes toward total debt repayment. To calculate it, firstly you need to find the amount of total debt you have:

total debt = housing costs + other debts

Adding housing costs and other debts tells you the amount of money you have to spend on debt repayment each month. Now you can proceed to calculate the percentage value dividing total debt by income and multiplying by 100%

back-end ratio = total debt / income * 100%

If the back-end ratio is not higher than 36% then you can say that you are following the 28/36 mortgage rule.

How to calculate 28/36 mortgage rule - an example

Let's assume your monthly income is $4000 and you have a mortgage on a house with housing costs $900. You also have a car loan, which means your other debts are $300. You want to check how your debts look compared to the 28/36 rule. First, you need to calculate the front-end ratio. You can do that dividing housing costs by income and multiplying the result by 100%:

front-end ratio = $900 / $4000 * 100% = 22.5%

It is below 28%, so you are in good standing when it comes to the first of the rule.

Now you want to check the second part of the rule. To do it you need to know your total debt. So add the car loan to the mortgage payment.

total debt = $900 + $300 = $1200

Knowing total debt, you can calculate the back-end ratio. You have to divide total debt by income and multiply it by 100%:

back-end ratio = $1200 / 4000 * 100% = 30%

It is below the recommended level of 36%. It means that your debts fall below the 28/36 mortgage rule and you could borrow a little bit more without endangering your financial situation.

Of course, you don't have to do all those calculations by hand. Let our calculator do the work for you! If you want to find the exact amount of money for the 28/36 rule for your income, you can start by entering the front-end or back-end ratio, and our calculator will do the reverse calculation.

How much house can I afford?

Knowing the front-end and back-end ratio and whether they follow 28/36 rule helps banks make a decision. Should an individual get a mortgage or an additional loan? What is the reasonable maximum amount of monthly payment?

From the side of a person, this information is also beneficial. The main benefit is knowing the health of your financial standing. Another thing is estimating the chances of getting a loan from the bank - if your debts are below the threshold of 28/36, you can probably count on getting it.

On the other hand, when you know your mortgage payments and debts are too high, and break the 28/36 rule, you can take steps to mitigate it. Additional work can increase your monthly income, lowering the percentage going to debt repayment. Paying off some of the debt and consolidating can also help. Most importantly if you exceed the 28/36 rule, you should avoid taking on additional debt.

The 28/36 rule is a useful guide but not a law, some lenders might be willing to lend money breaking it. They are prepared to take a more significant risk of unpaid debts seeking profit. From an individual point of view, tying more of your income to debt can create a too high financial burden. It would be best to stick to the 28/36 rule.

We hope that our 28/36 rule calculator was useful to you, but remember that financial decisions should not be made hastily. You should decide on a mortgage or a loan only after careful consideration.

Marcin Manias

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