1. What is the Mortgage Borrowing Capacity Calculator?

The Mortgage Borrowing Capacity Calculator estimates the maximum mortgage amount you can afford based on your annual income, expenses, and a buffered interest rate. It helps determine your borrowing capacity using standard affordability assessment principles.

2. How Does the Calculator Work?

The calculator uses the mortgage affordability formula:

Where:

• \( \text{Annual Income} \) — Your total yearly income
• \( \text{Annual Expenses} \) — Your total yearly expenses
• \( \text{Buffered Rate} \) — Interest rate with safety buffer (% per annum)
• 0.3 — Standard affordability ratio (30% of income)

Explanation: The formula calculates affordable monthly payment based on 30% of income minus expenses, then determines the mortgage principal that can be supported at the given interest rate.

3. Importance of Mortgage Affordability Assessment

Details: Proper affordability assessment is crucial for responsible borrowing, preventing financial stress, and ensuring long-term mortgage sustainability. It helps borrowers understand their realistic borrowing limits.

4. Using the Calculator

Tips: Enter your annual income and expenses in currency units, and the buffered interest rate as a percentage. Use realistic figures and include a safety buffer in the interest rate to account for potential rate rises.

5. Frequently Asked Questions (FAQ)

Q1: Why use 30% of income for affordability?
A: The 30% rule is a standard guideline that ensures mortgage payments remain manageable while allowing for other living expenses and savings.

Q2: What is a buffered interest rate?
A: A buffered rate is higher than current rates, providing a safety margin for potential interest rate increases during the loan term.

Q3: Should I include all expenses?
A: Yes, include all regular annual expenses (utilities, food, transport, insurance, etc.) for an accurate assessment.

Q4: Are there other factors affecting borrowing capacity?
A: Yes, lenders also consider credit history, existing debts, loan term, and employment stability when assessing borrowing capacity.

Q5: Is this calculation applicable for investment properties?
A: While the same principles apply, investment property assessments may also consider potential rental income and different tax implications.