Mortgage Affordability Calculator
Start from the payment rather than the price. Decide what you can comfortably manage each month, and this works backwards to the loan that payment supports.
You could borrow
$376,421.64
- Loan amount
- $316,421.64
- Plus deposit
- $376,421.64
- Total interest
- $403,578.36
- Total repaid
- $720,000.00
- Term
- 30 years
- This is what the payment supports, not what you should borrow. Lenders also weigh your other debts, and a payment you can just about meet leaves no room for a bad month.
- Principal and interest only — taxes, insurance and service charges sit on top of this and are often a significant part of the real monthly cost.
About the affordability calculator
Most affordability tools ask for your income and apply a multiple. This asks for the payment instead, which is a better question: a multiple of income is a lender's rule of thumb, but the payment is the thing that actually has to come out of your account every month for decades.
It runs the amortization formula backwards. Given a payment, a rate and a term, there is exactly one loan size that clears in that time — $2,000 a month at 6.5% over thirty years supports a loan of $316,422. Add your deposit and that is the purchase price you are working with.
What it deliberately does not do is tell you what you should borrow. That is a different question, and the honest answer involves things no calculator knows: how secure the income is, what else is committed, and whether a bad month would be inconvenient or catastrophic. A payment you can just about meet leaves no room at all.
The figure is also principal and interest only. Property taxes, buildings insurance, any service charge or ground rent, and mortgage insurance if your deposit is small, all sit on top — and on a modestly priced house they can add a third again to the monthly cost. Work out what those come to locally and subtract them from your budget before using this.
A lender will also weigh your other debts. Car finance and credit card minimums reduce what they will lend even though they do not appear here, so the amount you are offered may be lower than the payment alone suggests.
What it works out
- The loan a given monthly payment supports
- Purchase price with your deposit added
- Total interest and total repaid over the term
- Any rate and term
The formula
P = M × ((1 + r)ⁿ − 1) ÷ (r(1 + r)ⁿ)
This is the standard amortization formula solved for the principal instead of the payment. Everything else is the same: r is the monthly rate and n the number of months.
At $2,000 a month, 6.5% and thirty years, it gives a loan of $316,422. With a $60,000 deposit that is a $376,422 purchase.
The rate has more effect on this than people expect, because it works on the whole balance for the whole term. The same $2,000 payment supports about $316,000 at 6.5% and around $372,000 at 5%. A point and a half of rate is worth more than a $50,000 deposit here.
The term cuts the other way and is a worse deal than it looks. Going from thirty years to forty raises what the same payment supports by only about eight per cent, while adding ten years of payments. Almost all of the extra goes to interest.
- M
- The monthly payment you can manage, principal and interest only.
- r
- The monthly rate — the annual rate divided by twelve.
- n
- The number of monthly payments in the term.
- P
- The loan that payment supports. Add your deposit for the purchase price.
A worked example
A payment of $2,000 a month at 6.5% over thirty years, with a $60,000 deposit.
That works out to $376,421.64 .
- Loan amount
- $316,421.64
- Plus deposit
- $376,421.64
- Total interest
- $403,578.36
- Total repaid
- $720,000.00
- Term
- 30 years
Questions
How much can I borrow on $2,000 a month?
About $316,400 at 6.5% over thirty years. With a $60,000 deposit that is a purchase price of roughly $376,400 — before taxes, insurance and fees, which are not part of the loan.
Should I use my income or my payment?
The payment, if you know what you can manage. Income multiples are a lender's screening rule and take no account of what else you spend. The payment is the amount that genuinely has to leave your account every month.
What is not included in this payment?
Property taxes, buildings insurance, mortgage insurance if your deposit is under twenty per cent, and any service charge or ground rent. Together those can add a third again to the monthly cost, so subtract them from your budget before entering a payment here.
Does a longer term let me afford much more?
Less than you would think. Stretching thirty years to forty raises the loan the same payment supports by about eight per cent, and costs ten more years of payments. Nearly all of the extra borrowing capacity is spent on interest.
How much difference does the rate make?
More than the deposit, usually. At $2,000 a month the same payment supports about $316,000 at 6.5% and around $372,000 at 5%. That gap is larger than a $50,000 deposit.
Will a lender actually offer me this?
Not necessarily. Lenders apply their own affordability rules, stress-test the payment against a higher rate, and count your existing debts — car finance and card minimums both reduce what they will lend. Treat this as your ceiling rather than theirs.
How big a deposit do I need?
Twenty per cent is the threshold that usually avoids mortgage insurance, which is a real monthly cost for nothing you get to keep. Smaller deposits are widely available and simply cost more each month until you reach that mark.
Should I borrow the maximum?
The maximum is what the arithmetic permits, not what is wise. A payment that only works if nothing changes is a payment with no margin in it, and over a thirty-year term things change.