1. What is the Mortgage Capacity Calculation?

The mortgage capacity calculation determines the maximum mortgage amount a borrower can afford based on their serviceable income and the annuity factor. This helps individuals understand their borrowing capacity before applying for a home loan.

2. How Does the Calculator Work?

The calculator uses the mortgage capacity formula:

Where:

• \( Serviceable\ Amount \) — Monthly amount available for mortgage servicing ($)
• \( Annuity\ Factor \) — Decimal factor representing the mortgage terms

Explanation: The calculation divides the monthly serviceable amount by the annuity factor to determine the maximum mortgage principal.

3. Importance of Mortgage Calculation

Details: Accurate mortgage capacity calculation is crucial for financial planning, ensuring borrowers don't overextend themselves and can comfortably meet their repayment obligations.

4. Using the Calculator

Tips: Enter your monthly serviceable amount in dollars and the annuity factor as a decimal. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a serviceable amount?
A: The serviceable amount is the monthly sum available after accounting for all expenses that can be allocated toward mortgage repayments.

Q2: How is the annuity factor determined?
A: The annuity factor is calculated based on interest rate and loan term, representing the monthly payment per dollar of loan amount.

Q3: Should this calculation include other debts?
A: Yes, your serviceable amount should account for all existing financial commitments to ensure accurate borrowing capacity.

Q4: Are there limitations to this calculation?
A: This is a simplified calculation. Lenders may use more complex formulas that consider credit history, loan-to-value ratios, and other factors.

Q5: Should I borrow the maximum calculated amount?
A: Not necessarily. It's often wise to borrow less than your maximum capacity to maintain financial flexibility for unexpected expenses.