1. What is Mortgage Affordability Calculation?

The mortgage affordability calculation determines the maximum principal amount you can afford for an interest-only mortgage based on your income, expenses, and the annual interest rate. This helps potential homeowners understand their borrowing capacity.

2. How Does the Calculator Work?

The calculator uses the mortgage affordability formula:

Where:

• \( Income \) — Monthly income in currency units
• \( ratio \) — Decimal ratio of income allocated to mortgage payments
• \( expenses \) — Monthly expenses in currency units
• \( R \) — Annual interest rate in percentage

Explanation: The formula calculates the maximum principal amount that can be supported by your available income after expenses, considering the annual interest rate for an interest-only mortgage.

3. Importance of Mortgage Affordability Calculation

Details: Calculating mortgage affordability is crucial for financial planning, ensuring you don't overextend yourself financially, and helping you understand what property price range you can realistically consider.

4. Using the Calculator

Tips: Enter your monthly income, the decimal ratio of income you want to allocate to mortgage payments, your monthly expenses, and the annual interest rate. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only mortgage?
A: An interest-only mortgage requires you to pay only the interest on the loan each month, with the principal amount due at the end of the mortgage term.

Q2: How is the ratio typically determined?
A: The ratio is usually based on lender guidelines and personal financial comfort, typically ranging from 0.25 to 0.35 of monthly income.

Q3: What expenses should be included?
A: Include all regular monthly expenses such as utilities, food, transportation, existing debt payments, and other recurring costs.

Q4: Are there other costs besides interest?
A: Yes, you should also consider property taxes, insurance, and maintenance costs when determining overall affordability.

Q5: Is this calculation specific to the UK?
A: While the formula is generally applicable, specific lender criteria and regulations may vary by country. This calculator follows UK mortgage affordability principles.