Mortgage Calculator Borrowing Capacity

Mortgage Capacity Formula:

\[ Mortgage\ Capacity = \frac{(Income - Expenses) \times Term}{Rate} \]

Income:

currency

Expenses:

currency

Term:

years

Rate:

decimal

Mortgage Capacity:

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1. What is Mortgage Borrowing Capacity?

Mortgage borrowing capacity refers to the maximum amount a borrower can potentially borrow based on their financial situation. It's calculated by considering income, expenses, loan term, and interest rate to determine affordability.

2. How Does the Calculator Work?

The calculator uses the mortgage capacity formula:

\[ Mortgage\ Capacity = \frac{(Income - Expenses) \times Term}{Rate} \]

Where:

\( Income \) — Total monthly or annual income
\( Expenses \) — Total monthly or annual expenses
\( Term \) — Loan term in years
\( Rate \) — Interest rate (expressed as decimal)

Explanation: This formula calculates the maximum borrowing capacity by considering the net available funds (income minus expenses) over the loan term, adjusted for the interest rate.

3. Importance of Mortgage Capacity Calculation

Details: Calculating mortgage capacity helps borrowers understand their borrowing limits, ensures they don't overextend financially, and assists in budget planning for home ownership.

4. Using the Calculator

Tips: Enter income and expenses in the same currency units, term in years, and rate as a decimal (e.g., 0.05 for 5%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What income sources should be included?
A: Include all stable and verifiable income sources such as salary, bonuses, rental income, and investments.

Q2: What expenses should be considered?
A: Include all regular monthly expenses like utilities, groceries, existing loan payments, insurance, and other recurring costs.

Q3: How does the interest rate affect borrowing capacity?
A: Higher interest rates reduce borrowing capacity as more money goes toward interest payments rather than principal.

Q4: Should I use monthly or annual figures?
A: Ensure consistency - use either all monthly figures or all annual figures for accurate calculations.

Q5: Is this calculation sufficient for mortgage approval?
A: While this provides a good estimate, lenders also consider credit history, down payment, debt-to-income ratio, and other factors for final approval.