Home Mortgage Calculator - How Much Can I Afford

Mortgage Affordability Formula:

\[ \text{Affordable amount} = (\text{monthly income} \times 0.28) \times \frac{(1 + r)^n - 1}{r \times (1 + r)^n} \times 12 - \text{debts} \]

Monthly Income:

USD

Monthly Interest Rate:

decimal

Loan Term:

months

Existing Debts:

USD

Affordable Mortgage Amount:

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1. What is the Mortgage Affordability Calculator?

The Mortgage Affordability Calculator helps determine how much home you can afford based on your income, existing debts, and current interest rates. It uses the standard 28% front-end debt-to-income ratio to calculate your maximum affordable mortgage amount.

2. How Does the Calculator Work?

The calculator uses the mortgage affordability formula:

\[ \text{Affordable amount} = (\text{monthly income} \times 0.28) \times \frac{(1 + r)^n - 1}{r \times (1 + r)^n} \times 12 - \text{debts} \]

Where:

\( \text{monthly income} \) — Your gross monthly income
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Loan term in months
\( \text{debts} \) — Your existing debts
0.28 — Standard front-end debt-to-income ratio

Explanation: The formula calculates the present value of an annuity (your maximum mortgage amount) based on what you can afford to pay monthly.

3. Importance of Mortgage Affordability

Details: Calculating your affordable mortgage amount helps prevent overborrowing, ensures comfortable monthly payments, and maintains healthy financial ratios for loan approval.

4. Using the Calculator

Tips: Enter your gross monthly income (before taxes), the monthly interest rate (divide annual rate by 12), loan term in months, and any existing debts. The calculator will show your maximum recommended mortgage amount.

5. Frequently Asked Questions (FAQ)

Q1: Why use 28% of income?
A: Lenders typically recommend spending no more than 28% of gross income on housing (front-end ratio) and no more than 36% on total debt (back-end ratio).

Q2: Should I include taxes and insurance?
A: This calculator focuses on principal and interest. For a complete picture, add 1-2% of home value annually for taxes and insurance.

Q3: What if I have variable income?
A: Use a conservative estimate of your stable monthly income, not including bonuses or commissions.

Q4: How does credit score affect this?
A: Higher credit scores qualify for better interest rates, increasing your affordable amount at the same payment level.

Q5: What's the ideal loan term?
A: Shorter terms (15-20 years) save interest but have higher payments. Longer terms (30 years) lower payments but cost more overall.