1. What is Mortgage Affordability?

Mortgage affordability refers to the maximum loan amount a borrower can qualify for based on their income, existing debts, and current interest rates. It helps determine how much house you can afford while maintaining financial stability.

2. How Does the Calculator Work?

The calculator uses the affordability formula:

Where:

• \( Income \) — Annual income before taxes ($)
• \( Debt \) — Annual debt payments ($)
• \( Rate \) — Annual interest rate (%)

Explanation: The equation calculates how much mortgage you can afford by considering your disposable income (after debts) and the current interest rate environment.

3. Importance of Affordability Calculation

Details: Calculating mortgage affordability helps prevent overborrowing, ensures manageable monthly payments, and maintains a healthy debt-to-income ratio.

4. Using the Calculator

Tips: Enter your gross annual income, total annual debt payments, and current mortgage interest rate. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Should I use gross or net income?
A: This calculator uses gross income, but lenders typically consider both gross and net income when qualifying borrowers.

Q2: What debts should be included?
A: Include all recurring monthly debts multiplied by 12 (credit cards, car loans, student loans, etc.).

Q3: How does interest rate affect affordability?
A: Higher rates decrease affordability as more of your payment goes toward interest rather than principal.

Q4: What's a good debt-to-income ratio?
A: Most lenders prefer a total debt-to-income ratio below 36%, with no more than 28% going toward housing.

Q5: Does this include property taxes and insurance?
A: This is a basic calculator. For a complete picture, consider adding 1-2% of home value annually for taxes and insurance.