Mortgage Affordability Calculator

How to Use the Affordability Calculator

Property portals tell you what you can borrow. This calculator tells you what a lender's ratio test actually allows, which is usually a good deal less — and then shows which of the two limits is the one holding you back.

1. Enter gross household income. Before tax. Lenders test against gross rather than take-home, which is why the resulting figure can feel higher than your budget suggests.
2. Enter your other monthly debt payments. Car finance, student loans, credit card minimums, anything reported to a credit agency. These come straight off the back-end allowance.
3. Enter your deposit. Every extra pound of deposit buys slightly more than a pound of price, because it also removes the interest that pound would have carried.
4. Set the rate and term. Use a rate you have actually been quoted. Affordability is extremely sensitive to it — the table at the bottom shows how much.
5. Adjust the two limits if you need to. Twenty-eight and thirty-six are the classic conventional-loan ratios. Government-backed programmes and some lenders allow considerably more, particularly with compensating factors.

The tag beside the headline tells you which limit is binding. If it is the front-end limit, clearing debt will not help — only more income or a bigger deposit will. If it is the back-end limit, clearing debt buys you price directly.

Affordability Formula

The lender's test comes first; the price falls out of it.

The last line is the only algebra on the page. Because escrow scales with the price and the mortgage payment scales with the price minus the deposit, the price appears on both sides — so it has to be collected and divided out rather than computed directly.

Example

$95,000 income, $650 of other debts, $60,000 deposit, 6.5% over thirty years

1. Gross monthly income: 95,000 ÷ 12 = $7,916.67.
2. Front-end cap: 7,916.67 × 0.28 = $2,216.67.
3. Back-end cap: (7,916.67 × 0.36) − 650 = 2,850 − 650 = $2,200.00.
4. Housing budget: the lower of the two, $2,200.00 — so the back-end limit is binding.
5. Solving for price with 1.1% tax and 0.35% insurance gives a maximum of $342,574.
6. That splits into a $282,574 mortgage at $1,786.06 a month, plus $413.94 of tax and insurance — $2,200.00 exactly.

What actually moves the number

The debt-clearing result is the interesting one. Removing $650 a month of payments only adds $2,214 of buying power, because once the back-end limit is relieved the front-end limit takes over almost immediately. That is worth knowing before you drain savings to clear a car loan in the hope of buying a bigger house — the debt payoff calculator is still the right reason to do it, just not this one.

What the 28/36 Rule Does and Does Not Measure

The 28/36 rule is a lender's risk test, not a household budget. Understanding what it does and does not measure is the difference between a number and a decision.

Note what is missing from the second column. Childcare alone can exceed a mortgage payment; a lender's ratio does not see it. Nor does it see that you were saving 20% of income and will stop, or that the commute from the cheaper suburb costs $400 a month. The ratio measures the lender's risk of not being repaid, which correlates with but is not the same as your ability to live comfortably.

A more conservative personal test is to take the total monthly payment this calculator produces, add 1% of the property's value a year for maintenance, and check the result against take-home rather than gross income. On the worked example that is $2,200 plus about $285 of maintenance against a take-home figure that might be $6,100 — 40.7% of net income, which is a very different impression from 27.8% of gross.

Different loan programmes stretch the ratios. Government-backed loans in several countries allow back-end ratios above 40%, and some lenders go further with compensating factors such as large reserves or a long stable employment history. Being allowed to borrow more is not the same as it being wise.

Five Things to Check Before Trusting This Figure

Five things to check before treating this figure as your budget.

The rate you are actually offered. Advertised rates go to the best-qualified applicants. A rate one point higher costs about $23,000 of buying power on this example, so get a decision in principle before house-hunting.

Property tax varies enormously by location. Between 0.3% and 2.5% of value is a realistic range across different jurisdictions, and the difference between the ends of that range is worth roughly $80,000 of purchase price on this income. Look up the actual rate for the area you are searching.

The deposit is not the only cash you need. Closing costs typically run 2–5% of the price on top — the closing cost calculator itemises them — and moving in usually costs more than expected.

Income counted may differ. Bonuses, commission and self-employed income are often averaged over two or three years, or discounted. If a meaningful share of your income is variable, expect the lender's figure to be lower than the one here.

Leave room. Borrowing the maximum leaves nothing for a rate rise, a boiler, or a change in circumstances. Many people deliberately target 80–90% of the figure a lender allows, and that decision is far easier to make before you have fallen in love with a house.

Once you have a price in mind, the mortgage calculator gives the exact payment including escrow, and the rent vs buy calculator tests whether buying at that price beats renting over your actual time horizon.

One habit worth building before you apply: run the test yourself, in writing, with your own figures, a month before a lender does. Underwriters look at gross income, documented and verifiable, and at every commitment showing on your credit file. Discovering a forgotten store card or a car finance agreement at the underwriting stage costs you a fortnight and sometimes the property. Doing the arithmetic first turns a decision made about you into one you already understand.