Loan Affordability Calculator

Loan affordability: translating a monthly budget into principal

Affordability calculators invert the payment formula: given a target monthly outlay and rate, you solve for maximum principal. This matches “how much house/car can I buy if I refuse to exceed $X per month?”.

Reality checks: lenders also weigh DTI (debt-to-income), credit score, down payment, and reserves. Your comfort cap might be lower than the bank’s max—plan for taxes, insurance, maintenance, and emergency savings.

Pair with the loan repayment calculator to forward-test increases in rate or drops in income.

How the maximum loan is worked out

The calculator runs the loan-payment formula backwards. Instead of asking what a given loan will cost each month, it asks how large a loan a fixed monthly payment can repay over the term: maximum loan = payment × (1 − (1 + r)⁻ⁿ) ÷ r, where r is the annual rate ÷ 12 and n is the number of monthly payments. At a 0% rate it is simply payment × n.

With the default inputs — $1,500 a month at 5% for 30 years — the maximum loan is $279,422. Over 360 payments you would pay $540,000 in total, so $260,578 of that is interest: almost as much as the amount borrowed.

How much the rate and term change the answer

The same $1,500 monthly payment supports very different loan sizes depending on the rate and the term:

Rate   30-year loan   15-year loan
4%     $314,192       $202,788
5%     $279,422       $189,683
6%     $250,187       $177,755
7%     $225,461       $166,884
8%     $204,425       $156,961

Each percentage point of interest costs roughly $20,000–35,000 of borrowing power on a 30-year loan. Halving the term to 15 years cuts the loan you can afford by about a third, but saves far more than that in interest — which is why the right term depends on whether the monthly payment or the total cost matters more to you.

Enter the right monthly figure

• For a mortgage, the payment here is principal and interest only. Property tax, homeowners insurance, PMI and HOA dues come on top, so subtract them from your total housing budget first: with $2,000 a month to spend on housing and about $400 of tax and insurance, enter $1,600.
• For a car or personal loan, use the payment you could keep up even in a lean month, not the most a lender would approve.
• Add your down payment to the maximum loan to get a price range — and keep separate cash for closing costs, which commonly run 2–5% of a home’s price.

Rules of thumb lenders and planners use

• 28/36 rule (conventional mortgages): housing costs at most 28% of gross monthly income, and all debt payments together at most 36%. On a $6,000 gross monthly income that is $1,680 for housing and $2,160 for all debts.
• FHA loans use a looser guideline of about 31% for housing and 43% for total debt, and lenders can approve higher ratios with strong compensating factors.
• 20/4/10 rule for cars: at least 20% down, a loan of no more than 4 years, and total transport costs under 10% of gross income.
• These rules use gross (pre-tax) income. If you budget from take-home pay, the same percentages are noticeably more conservative — which is often the safer reading.

Mistakes that overstate what you can afford

• Using a teaser rate: an adjustable-rate loan can reset higher after its fixed period. Check the payment at the rate it could adjust to, not just the starting rate.
• Stretching the term to make the number work: a longer term raises the maximum loan but keeps you in debt longer and costs much more interest.
• Forgetting maintenance: homeowners commonly budget 1–2% of a home’s value per year for repairs, which no loan formula includes.
• Leaving no buffer: a payment that only works if nothing changes leaves no room for a job change, a new child or a rate rise.