Understanding the Mortgage Affordability Calculator
Buying a home is a significant financial decision, and understanding how much house you can afford is the crucial first step. This calculator helps you determine the maximum home price you can potentially afford based on your desired monthly mortgage payment, the prevailing interest rates, and the loan term you choose. It works by solving the standard mortgage payment formula for the principal loan amount (which represents the home price, excluding down payment).
How It Works (The Math Behind It)
The calculator uses the standard monthly mortgage payment formula, often referred to as the P&I (Principal and Interest) payment formula. The formula is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment (Principal & Interest)
P = The principal loan amount (this is what we are solving for in this calculator)
i = Your monthly interest rate (Annual interest rate / 12 / 100)
n = The total number of payments over the loan's lifetime (Loan term in years * 12)
In our "What Can I Afford" calculator, we rearrange this formula to solve for P, given a target M (your desired maximum monthly payment). The rearranged formula is:
P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
The calculator takes your desired monthly payment (M), converts the annual interest rate to a monthly rate (i), and calculates the total number of payments (n) based on the loan term. It then plugs these values into the rearranged formula to estimate the maximum principal loan amount (P) you can afford.
Important Considerations
This calculator provides an estimate for the principal and interest portion of your mortgage payment. It does not include other critical housing costs such as:
Property Taxes: These vary significantly by location.
Homeowners Insurance: Required by lenders to protect against damage.
Private Mortgage Insurance (PMI): Typically required if your down payment is less than 20%.
Homeowners Association (HOA) Fees: If applicable in your community.
Maintenance and Repairs: Ongoing costs to keep your home in good condition.
Therefore, the home price you can afford is likely lower than the figure shown by this calculator once these additional expenses are factored in. Lenders often use a Debt-to-Income (DTI) ratio to determine your borrowing limit, considering all your monthly debt obligations, not just your potential mortgage payment.
Using the Calculator Effectively
Determine Your Maximum Comfortable Monthly Payment: Be realistic about what you can afford each month, including P&I, taxes, insurance, and other housing costs.
Input Current Interest Rates: Use interest rates from recent mortgage offers or current market averages. Rates fluctuate daily.
Select Loan Term: Shorter terms usually mean higher monthly payments but less total interest paid over time. Longer terms mean lower monthly payments but more total interest.
Calculate: See the estimated maximum principal loan amount.
Adjust and Re-calculate: Play with different monthly payment targets and interest rates to see how they impact your affordability.
This tool is a valuable starting point for your home-buying journey, helping you set realistic expectations and budget effectively.
function calculateMortgageAffordability() {
var monthlyPayment = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("interestRate").value);
var loanTermYears = parseInt(document.getElementById("loanTerm").value);
// Basic input validation
if (isNaN(monthlyPayment) || monthlyPayment <= 0) {
alert("Please enter a valid desired monthly payment.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid annual interest rate.");
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please enter a valid loan term in years.");
return;
}
var monthlyInterestRate = (annualInterestRate / 100) / 12;
var numberOfPayments = loanTermYears * 12;
var maxHomePrice = 0;
// Handle the case where monthlyInterestRate is 0 (0% interest)
if (monthlyInterestRate === 0) {
maxHomePrice = monthlyPayment * numberOfPayments;
} else {
// Rearranged mortgage formula to solve for P (Principal Loan Amount)
// P = M [ (1 + i)^n – 1] / [ i(1 + i)^n ]
var numerator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
var denominator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
maxHomePrice = monthlyPayment * (numerator / denominator);
}
// Format the result to two decimal places and add commas
var formattedMaxHomePrice = "$" + maxHomePrice.toFixed(2).replace(/\B(?=(\d{3})+(?!\d))/g, ",");
document.getElementById("result-value").textContent = formattedMaxHomePrice;
}