What percentage of your income should go to mortgage?

Though your mortgage costs will depend on your income levels, circumstances, financial goals, and current debts, the general rule is that you should not spend more than 25-28% of your income on your mortgage, and your mortgage should not be more than 36% of your debt.

Why this split? Sometimes when people buy homes they cannot afford, they end up becoming house-poor ie they cannot spend on entertainment, vacations and savings because they are already spending so much on their home mortgage. That's why money lenders usually check for something called ''debt to income'' ratio to ensure that the EMIs are affordable for the customers. 

Banks usually consider 30% to be a benchmark for mortgage buyers ie mortgage buyers cannot spend more than 30% of their in-hand salary on EMIs. Otherwise, homeowners can realistically get cost burdened and default on their payments, thus leading to banks getting ownership of these mortgaged homes. 

So what's the best range of mortgage expenditure you should incur? Though what you spend on a mortgage depends on your income, circumstances, financial goals, and current debts, you need to follow a discipline to live comfortably and be able to pay for your other expenses as well. 

1. 25% of post-tax income: Some experts recommend that your total monthly debt should be 25% or less of your post-tax income. 
2. The 28% to 36% rule: If you don't want to calculate your post-tax income, some experts state that your mortgage payments should be less than 28% of your monthly gross income and less than 36% of your total debt. To check if you are following the 28% rule, divide the total monthly housing cost (ie mortgage loan payment, interest, property taxes, insurance, etc) by the total monthly income. To check if you are following the 36% rule, take your total monthly debt and divide it by your monthly income. 
3. The 35%/45% model: Other experts also recommend a 35%/45% model, where your total monthly debt shouldn't be more than 35% of your pre-tax income or 45% more than your after-tax income. 

Though these models are an approx guide, you also need to keep your financial needs, goals and the current reality in mind. If you notice, mortgage rates are shooting through the roof with global interest rates being hiked consistently. A Bloomberg report published in March 2022 said that mortgage costs in the US are 36% higher than it was a year ago. So it's always better to be well under these limits so that even if interest rates rise, you can manage your budget to quite an extent.