Mortgage Loan Capacity Calculator

Mortgage Capacity Formula:

\[ \text{Max Loan} = \frac{\text{Net Income} \times \text{LMI Factor}}{\text{P\&I Rate}} \]

Maximum Loan Amount:

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1. What is Mortgage Loan Capacity?

Mortgage loan capacity refers to the maximum amount a borrower can qualify for based on their financial situation and lender requirements. This calculation helps determine how much you can borrow while considering factors like income, loan-to-value ratios, and mortgage insurance.

2. How Does the Calculator Work?

The calculator uses the mortgage capacity formula:

\[ \text{Max Loan} = \frac{\text{Net Income} \times \text{LMI Factor}}{\text{P\&I Rate}} \]

Where:

$ \text{Net Income} $ — Monthly after-tax income ($)
$ \text{LMI Factor} $ — Lenders Mortgage Insurance factor (decimal)
$ \text{P\&I Rate} $ — Principal and Interest rate (decimal)

Explanation: This formula calculates the maximum loan amount you can qualify for by considering your income, mortgage insurance requirements, and the interest rate on your loan.

3. Importance of Calculating Loan Capacity

Details: Understanding your mortgage capacity is crucial for home buying planning, budgeting, and ensuring you don't overextend yourself financially. It helps set realistic expectations before house hunting.

4. Using the Calculator

Tips: Enter your monthly net income after taxes, the LMI factor provided by your lender (typically between 0.8-0.95), and the principal and interest rate as a decimal (e.g., 0.045 for 4.5%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is LMI Factor?
A: LMI (Lenders Mortgage Insurance) Factor is a multiplier used by lenders when calculating loan capacity for borrowers with less than 20% deposit. It typically ranges from 0.8 to 0.95.

Q2: How accurate is this calculation?
A: This provides an estimate. Actual loan amounts may vary based on credit history, other debts, lender policies, and current market conditions.

Q3: Should I use gross or net income?
A: This calculator uses net (after-tax) income, as this represents your actual disposable income available for mortgage payments.

Q4: What other factors affect my borrowing capacity?
A: Credit score, existing debts, living expenses, dependents, employment stability, and the property value all influence your final borrowing capacity.

Q5: Is this calculation applicable for investment properties?
A: While the same formula can be used, lenders often apply different criteria for investment properties, including potential rental income assessment and different LMI factors.