About Asset Depletion Calculator (Formula)
The Asset Depletion Calculator is a financial tool often used in mortgage lending to assess a borrower’s ability to qualify for a loan using their financial assets as a source of income. This calculator is particularly useful for individuals who have substantial assets but may not have a traditional income stream. The formula for calculating asset depletion involves several key components:
Asset Depletion Income = (Total Liquid Assets – Reserves) / Number of Months
Where:
- Asset Depletion Income represents the monthly income derived from depleting assets, which is used for loan qualification purposes.
- Total Liquid Assets refer to the total value of the borrower’s liquid assets, such as savings accounts, stocks, bonds, and other easily convertible assets.
- Reserves represent a required amount of assets that are typically retained as a safety cushion, often expressed as a certain number of monthly mortgage payments.
- Number of Months is the time period over which the assets are expected to be depleted to cover the mortgage payments.
The Asset Depletion Calculator helps mortgage lenders determine if a borrower’s financial assets are sufficient to support monthly mortgage payments over the desired loan term. By calculating the asset depletion income, lenders can evaluate the borrower’s ability to meet their financial obligations without traditional income sources.
This calculator is valuable for borrowers who have substantial assets but may not have a regular salary or income, such as retirees or individuals with significant investments. It provides a more holistic assessment of a borrower’s financial situation and can expand access to mortgage financing for those who may not meet traditional income criteria.