Calculating a Mortgage When You Have a Loan

The most important things at a glance

If you have an outstanding loan or credit facility and you also want to take out a mortgage, it is usually wise to pay off the credit first. Many people have some form of credit, for example through the ability to go into an overdraft at their bank or through a credit card. In the case of a personal loan or revolving credit, however, it is worth being extra careful. On this page we explain what your options are.

1. Applying for a mortgage with existing credit

Do you have a loan and cannot simply pay it off, but still want to apply for a mortgage? It is in principle possible to calculate a mortgage with existing credit, as long as your income is sufficient or the credit amount is not too high. When you apply for a mortgage with existing credit, the bank will deduct the borrowed amount at a multiple from your maximum mortgage.

Note: You can calculate a mortgage with existing credit, but you will probably find that it significantly limits how much you can borrow to buy a home.

Also keep in mind that with a revolving credit facility, the bank will deduct the full maximum credit limit from your borrowing capacity, not just the amount you have actually drawn. So if you have only drawn €1,000 from a possible €10,000, the bank still deducts the full €10,000. In that sense, calculating a mortgage with credit can work out quite unfavourably. You may end up being able to borrow so little that buying a home becomes impossible.

2. Revolving credit alongside a mortgage

With a revolving credit facility you can draw money up to a set limit. You can draw it all at once or in stages. You only pay interest on the portion you have already drawn. Partial or full repayments at any point do not incur extra costs. You also pay a fixed amount per month to the credit provider, called the instalment amount. The interest rate on the credit is not fixed and you can redraw repaid amounts. This does make it hard to predict when a revolving credit facility will be fully repaid. If you have revolving credit alongside a mortgage, it is important to speak with an independent adviser to explore your options.

3. Paying off your credit and then applying for a mortgage

Do you have enough savings to pay off the credit in full? Then it is probably wise to do so before submitting a mortgage application. You can calculate a mortgage with existing credit or decide to pay it off first so you can borrow more for your home. In the scenario above, you could well borrow significantly more for your home if you manage to pay off the outstanding credit in time and only then submit your application.

4. Calculating your maximum mortgage with existing credit

You can calculate your maximum mortgage here based on your income. However, if you have existing credit, the situation is often tailor-made. If you want to know what your mortgage options are when you have credit, your best bet is to contact an independent mortgage adviser.

Frequently asked questions

Can I apply for a mortgage if I have credit?

Yes, you can apply for a mortgage with existing credit, but your options will be limited.

How does my credit affect my mortgage?

The bank deducts your credit from the maximum mortgage you can apply for, which means the maximum amount will be considerably lower.

What is a revolving credit facility?

This is a credit arrangement where you can draw up to a set limit, make partial or full repayments without extra costs, and redraw the repaid amounts.

Is it better to pay off my credit before applying for a mortgage?

Yes, it is wise to pay off your credit first because having existing credit will limit your borrowing options.