Use a Mortgage Calculator and Find Out Your Home-Buying Purchase Power
How much house can you afford? Purchasing property with a mortgage is likely to be the most extensive personal investment you’ll ever make. That’s why figuring out a comfortable monthly mortgage payment is a vital step in the home-buying process.
A common misunderstanding among first-time buyers is that a house’s list price determines whether they can afford to buy or not. Most buyers become so caught up in “Can we afford this?” that they forget the purchasing potential they have. Although the price tag does matter, your buying power is determined by how much money you have available each month for a mortgage payment.
Any reserves you’ve set aside for a down payment or the equity you have in your current home, if applicable, all impact your purchasing power. Calculating your monthly mortgage payment will prevent you from overestimating or underestimating your home-buying purchase power.
Let’s look at how you can estimate your buying power and set your budget before you start house shopping.
How to Use a Mortgage Calculator to Determine How Much You Can Afford
The amount of mortgage funds you can borrow is based on:
- Your monthly income
- Current mortgage rates, which change frequently
Your home-buying power will determine the maximum price you qualify for when purchasing property, depending on the amount you have saved up for your down payment and how much you qualify to borrow. It's paramount to note that your purchasing power declines with rising mortgage rates and increases with falling mortgage rates.
Let’s go over some mortgage calculator inputs, plus extra factors you’ll want to consider.
- Home price – what’s the price range of the houses you’re looking at?
- Down payment – how much cash have you saved up to put for a down payment?
- Loan term – the two most common loans are fixed 15-year and 30-year mortgages, which determine the amount of time you have to repay the loan.
- Loan APR (annual percentage rate) – the interest rate you’ll pay to borrow money.
Once you have these details, you can use our Mortgage Loan Calculator to estimate your monthly mortgage payment and buying power. Your monthly payment will be broken down into PITI (principal, interest, property taxes, and insurance). The UpEquity Mortgage Calculator can help you factor in estimated HOA and private mortgage insurance (PMI) fees.
When calculating mortgage payments, remember to factor in the hidden expenses of homeownership, such as repair and maintenance costs plus utility bills.
So, make sure the monthly mortgage payment that the mortgage calculator computes isn't the absolute maximum you can afford. Otherwise, you risk becoming "house poor"—a term used to describe individuals who spend too large a portion of their total income on homeownership expenses to the detriment of their current and future savings and cash flow.
What Key Factors Can You Adjust to Obtain a Lower Monthly Payment?
If you're not sure how much you can afford to pay for housing, try the tried-and-tested 28/36 percent rule. It's a rule used to estimate the amount of debt a household can assume. Lenders often use this rule when assessing a borrower's credit profile.
According to the 28/36 rule, your mortgage payment shouldn’t exceed 28% of your monthly pre-tax income and 36% of your total debt. Also known as your debt-to-income ratio, this rule is a critical metric that tells you how much debt you can realistically take on when buying or refinancing a home. It will also help you add a cushion to your finances.
Now that you know how much you can comfortably afford to pay per month, you can change one or more variables in the mortgage calculator to see how it would affect your monthly mortgage payment.
A few points to note:
- Lowering your interest rate will significantly reduce your monthly mortgage payments and the amount you pay over the loan’s life. A $50 difference in your payment may not seem like much, but it quickly adds up to $18,000 over a 30-year loan term. Work on your credit score to help obtain a lower interest rate.
- Save up a bigger down payment. If you put less than 20% down on a conventional down, you'll have to pay PMI premiums, and you'll probably end up with a higher interest rate.
- Increase the loan term. While shorter loan terms allow you to pay off the loan faster at a lower interest rate, they do significantly increase your monthly payments.
Does a Mortgage Calculator Have a Limit on the Loan or Purchase Amount to Calculate Your Monthly Payment?
There’s no limit to how much you can input for the loan amount in the mortgage calculator. You can use the calculator to determine your monthly payment even when buying the most expensive houses. You can use the calculator to determine how much you'll pay monthly in terms of PITI and homeowners insurance and HOA fees, if applicable.
Can You Use a Mortgage Calculator to Calculate the Appraisal Fee?
You cannot use a mortgage calculator to determine appraisal costs. A typical home appraisal depends on a variety of factors, including the home’s size, property’s market value, and its condition. Other factors that can be factored into appraisal costs include the location and any unusual features of your home.
Different appraisers have different fees. Luckily, appraiser's fees are regulated by the Consumer Protection Act to ensure that the prices are reasonable and customary for the geographic market.
Does a Mortgage Calculator Include Taxes and Other Fees in the Estimated Monthly Payment?
Yes! A mortgage calculator will break down your mortgage payments by:
- Principal and interest
- Property tax
- Homeowners insurance
- HOA fees
Mortgage Calculator—A Home Buyer’s Budgeting Tool
Getting clarity on your purchasing power allows you to buy the home you want instead of settling for the one you feel you can afford—or vice versa. A mortgage calculator allows you to estimate your budget before you even begin house hunting. You can see how factors such as interest rates, down payment amount, and repayment terms can affect your monthly payments.
Doing so enables you to adequately prepare to buy a home while allowing you to choose the mortgage that works best for you.
Have more questions? Check out some of our FAQs
FAQ #1: Are all mortgage calculators the same?
Essentially, a mortgage calculator helps you determine your monthly payments. However, online calculators differ in the level of information they provide. Not all calculators will provide information on property taxes, insurance, and HOA fees. Some just calculate the principal and interest. But, they’re not the only calculators or tools available to help you ready your finances as you prepare for a home purchase. Other tools include affordability calculators to help you determine how much home you can afford based on your income, PMI calculators, and even HOA calculators.
FAQ #2: Do you have to pay to use a mortgage calculator?
No, you don't have to pay to use a mortgage calculator. You can get all the details you need on mortgage payments without paying for the services—no matter how often you use them.
FAQ #3: Are mortgage calculators only used when buying a home?
A mortgage calculator is a versatile tool that you can use when buying a home and refinancing a property.