Don't Go Bust: The Ideal Mortgage Repayment Cap Based on Salary

Jakarta — The rise in Bank Indonesia’s benchmark rate (BI Rate) to 5.25 percent once again affects households’ calculations when taking out a home loan (KPR). When the BI rate increases, monthly mortgage payments can rise, particularly for floating-rate loans. In this context, the question many people ask is: what percentage of salary should ideally be allocated to mortgage payments? This ratio is one of the key benchmarks banks use to assess creditworthiness.

In practice, the rule most commonly used is the ‘28/36 rule’. The rule states that a maximum of 28 percent of gross monthly income should be allocated to housing costs, including mortgage payments, property tax, and home insurance. Meanwhile, total monthly debt, including the mortgage, should not exceed 36 percent of monthly income. Additionally, total other instalments such as credit cards, vehicle loans, or personal loans should not exceed Rp 3.6 million per month.

Investopedia notes that many lenders use this ratio as a reference in the mortgage approval process because it is thought to reflect the borrower’s ability to maintain financial health in the long term. The 28/36 rule is also related to the front-end debt-to-income ratio or mortgage-to-income ratio, i.e., the percentage of monthly income used specifically for housing costs. Meanwhile, the back-end ratio calculates total debt obligations relative to monthly income. This component includes mortgage payments, vehicle payments, credit cards, and other loans.

The rise in the BI Rate to 5.25 percent makes these calculations more important. A higher benchmark rate is usually followed by increases in bank lending rates, including for mortgages. Consequently, monthly instalments could become more expensive than when rates are low.