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The Mortgage Route A to Z
Existing liabilities

This glossary or A to Z should help clear up any confusion as to what terms mean what in the mortgage and insurance industry

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Letter E

Existing liabilities

Debts, other than an existing mortgage such as hire purchase, personal loans, school fees etc.

It is common for lenders to deduct the annual cost of such liabilities before multiplying your income up to calculate the amount you are able to borrow therefore when you are taking out a mortgage these liabilities can impede the amount you could borrow so it is important to keep them down if possible.

Some people for one reason and another also keep their existing mortgage if this is the case then the lender will also want to take this into their calculations, there are two ways that they will do this:-

1. Once they have calculated the income for borrowing they will deduct the capital of the existing debt eg. existing debt of 30,000, income of 40,000, no other liabilities = 40,000 times 3 (common lender income multiple) comes to 120,000 less the existing debt of 30,000 means that the applicant would be able to borrow a further 90,000.

2. If the applicant was to rent out the existing property which has the existing mortgage secured on it (this type of practice is becoming popular nowadays) subject to the rent exceeding a certain proportion of the interest on the existing debt this formula ranges from 125% to 150% of the mortgage payment then the lender is happy to ignore the existing mortgage.

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