Calculate Real Interest Rate with Nominal and Inflation
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Mortgage Affordability Calculator
Understanding Mortgage Affordability
Buying a home is one of the biggest financial decisions you'll make. A crucial part of this process is understanding how much mortgage you can realistically afford. Lenders and financial advisors often use specific formulas to assess affordability, considering various factors to ensure you can manage the loan payments comfortably without overextending your finances.
Key Factors in Mortgage Affordability
Annual Gross Income: This is the primary factor. Lenders look at your total income before taxes are deducted.
Monthly Debt Payments: This includes all your existing monthly financial obligations, such as credit card payments, student loans, auto loans, and any other recurring debts. These debts directly impact how much you can allocate to a mortgage.
Down Payment: The larger your down payment, the less you need to borrow, which significantly reduces your monthly payments and the overall interest paid.
Interest Rate: The annual interest rate on the mortgage dramatically affects your monthly payment. A lower rate means a lower payment for the same loan amount.
Loan Term: This is the number of years you have to repay the loan. Shorter terms typically have higher monthly payments but result in less interest paid over the life of the loan.
Common Affordability Guidelines
While this calculator provides an estimate, it's based on common lending guidelines. Many lenders suggest that your total monthly housing expenses (principal, interest, taxes, insurance – PITI) should not exceed 28% of your gross monthly income, and your total debt obligations (including PITI) should not exceed 36% of your gross monthly income. This calculator focuses on the debt-to-income ratio aspect to determine your maximum affordable loan amount.
How This Calculator Works
This calculator estimates your maximum affordable mortgage by:
Calculating your maximum allowable monthly debt payment based on a common lender guideline (e.g., 36% of gross monthly income).
Subtracting your existing monthly debt payments from this maximum allowable amount to determine how much you can afford for a mortgage payment.
Using a mortgage payment formula (based on the loan term and interest rate) to work backward and find the maximum loan principal you can support with that affordable monthly payment.
Adding your down payment to the maximum loan principal to estimate the maximum home price you can afford.
Remember, this is an estimation. Your actual borrowing capacity may vary based on the specific lender, your credit score, and other financial circumstances.
function calculateMortgageAffordability() {
var annualIncome = parseFloat(document.getElementById("annualIncome").value);
var monthlyDebt = parseFloat(document.getElementById("monthlyDebt").value);
var downPayment = parseFloat(document.getElementById("downPayment").value);
var interestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var resultElement = document.getElementById("result");
resultElement.innerHTML = ""; // Clear previous results
if (isNaN(annualIncome) || isNaN(monthlyDebt) || isNaN(downPayment) || isNaN(interestRate) || isNaN(loanTerm)) {
resultElement.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (annualIncome < 0 || monthlyDebt < 0 || downPayment < 0 || interestRate < 0 || loanTerm <= 0) {
resultElement.innerHTML = "Please enter positive values for income, debt, down payment, and interest rate. Loan term must be greater than 0.";
return;
}
// Assuming a Debt-to-Income (DTI) ratio limit of 36% for total debt obligations (including mortgage)
var maxTotalMonthlyObligations = annualIncome * 0.36 / 12;
var maxMortgagePayment = maxTotalMonthlyObligations – monthlyDebt;
if (maxMortgagePayment 0) {
// Calculate maximum loan principal using the mortgage payment formula rearranged
// M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
// P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
maxLoanPrincipal = maxMortgagePayment * (Math.pow(1 + monthlyInterestRate, loanTermInMonths) – 1) / (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, loanTermInMonths));
} else {
// If interest rate is 0, the loan principal is simply monthly payment * term in months
maxLoanPrincipal = maxMortgagePayment * loanTermInMonths;
}
var maxHomePrice = maxLoanPrincipal + downPayment;
// Formatting results for better readability
var formattedMaxHomePrice = "$" + maxHomePrice.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
var formattedMaxLoanPrincipal = "$" + maxLoanPrincipal.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
var formattedMaxMortgagePayment = "$" + maxMortgagePayment.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
resultElement.innerHTML =
"Estimated Maximum Home Price You Can Afford: " + formattedMaxHomePrice + "" +
"(This includes your down payment of " + "$" + downPayment.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,') + ")" +
"Estimated Maximum Mortgage Loan Principal: " + formattedMaxLoanPrincipal + "" +
"Estimated Maximum Affordable Monthly Mortgage Payment: " + formattedMaxMortgagePayment + "" +
"Note: This calculation is an estimate based on a 36% total debt-to-income ratio and does not include property taxes, homeowner's insurance, or HOA fees (PITI).";
}
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