1. What is a Mortgage Affordability Calculator?

Definition: This calculator determines the maximum loan amount you can afford based on your monthly payment budget, interest rate, and loan term.

Purpose: It helps homebuyers understand how much house they can afford based on their monthly payment comfort level.

2. How Does the Calculator Work?

The calculator uses the present value of an annuity formula:

Where:

• \( P \) — Affordable principal (USD)
• \( M \) — Affordable monthly payment (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12 ÷ 100)
• \( n \) — Total number of payments (years × 12)

Explanation: The formula calculates the present value of all future mortgage payments at the given interest rate.

3. Importance of Affordability Calculation

Details: Proper affordability calculation ensures you don't overextend your finances and can comfortably make payments throughout the loan term.

4. Using the Calculator

Tips: Enter your maximum comfortable monthly payment, current interest rate (default 5%), and desired loan term (default 30 years). All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: Should I include taxes and insurance in the payment?
A: No, this calculator works with principal and interest only. Add about 20-30% to your result for estimated total payment including taxes/insurance.

Q2: What if I want a 15-year mortgage?
A: Simply change the loan term to 15 years to see how much you can afford with a shorter term.

Q3: How does interest rate affect affordability?
A: Higher rates decrease affordability (you qualify for less), while lower rates increase it.

Q4: Is this the same as pre-approval amount?
A: No, this is just a calculation. Actual pre-approval considers credit score, debt-to-income ratio, and other factors.

Q5: What's a good rule of thumb for monthly payment?
A: Most experts recommend keeping housing payments below 28% of gross monthly income.