Your borrowing capacity is the maximum amount of money a lender might be willing to lend you based on your financial situation. It's a crucial figure when considering significant purchases like a home or when looking to consolidate debt. This calculator provides an estimation, and actual lending amounts may vary based on lender-specific policies, credit scores, and a thorough assessment of your financial health.
How the Calculation Works
The calculation for borrowing capacity involves estimating your ability to service debt, considering your income, expenses, existing financial commitments, and the terms of the proposed loan.
Available Income for Repayments: We start by determining how much of your income is available to service new loan repayments. This is calculated as:
(Total Annual Income / 12) - Total Monthly Expenses - Total Monthly Existing Debt Repayments
Loan Serviceability Factor: Lenders typically apply a buffer rate (or stress test rate) to ensure borrowers can manage repayments even if interest rates rise. A common approach is to add a margin to the current interest rate. For simplicity in this calculator, we use a slightly increased rate to simulate this.
Maximum Loan Amount Estimation: Using the available income and the estimated loan servicing ability (considering the proposed loan term and an adjusted interest rate), we can estimate the maximum loan amount. The formula for the maximum loan amount (`P`) based on a monthly payment (`M`), interest rate per month (`r`), and number of months (`n`) is derived from the annuity formula:
P = M * [1 - (1 + r)^-n] / r
Where:
`M` is the Available Income for Repayments calculated above.
`r` is the Monthly Interest Rate ((Estimated Annual Interest Rate / 100) / 12).
`n` is the Proposed Loan Term in months.
Note: This calculator uses simplified assumptions. It does not account for:
Your credit score.
Lender-specific serviceability buffers or assessment rates.
Potential changes in your income or expenses.
The impact of fees, charges, or loan features (e.g., interest-only periods).
Deposit or equity you may have.
For precise borrowing capacity, it is always recommended to consult directly with a mortgage broker or a financial institution.
function calculateBorrowingCapacity() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyExpenses = parseFloat(document.getElementById("monthlyExpenses").value);
var existingDebts = parseFloat(document.getElementById("existingDebts").value);
var proposedLoanTermMonths = parseInt(document.getElementById("proposedLoanTermMonths").value);
var estimatedInterestRate = parseFloat(document.getElementById("estimatedInterestRate").value);
var resultDiv = document.getElementById("result");
resultDiv.innerHTML = ""; // Clear previous results
// Input validation
if (isNaN(annualIncome) || annualIncome <= 0 ||
isNaN(monthlyExpenses) || monthlyExpenses < 0 ||
isNaN(existingDebts) || existingDebts < 0 ||
isNaN(proposedLoanTermMonths) || proposedLoanTermMonths <= 0 ||
isNaN(estimatedInterestRate) || estimatedInterestRate <= 0) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
// Calculate monthly income
var monthlyIncome = annualIncome / 12;
// Calculate available income for new loan repayments
var availableForRepayments = monthlyIncome – monthlyExpenses – existingDebts;
// Ensure there's positive income available for repayments
if (availableForRepayments 0) {
maxLoanAmount = availableForRepayments * (1 – Math.pow(1 + monthlyInterestRate, -proposedLoanTermMonths)) / monthlyInterestRate;
} else {
// Handle zero interest rate scenario (though unlikely for loans)
maxLoanAmount = availableForRepayments * proposedLoanTermMonths;
}
// Format the result
var formattedMaxLoanAmount = maxLoanAmount.toLocaleString(undefined, {
minimumFractionDigits: 0,
maximumFractionDigits: 0
});
resultDiv.innerHTML = "Estimated Borrowing Capacity: $" + formattedMaxLoanAmount + "";
}