Loan Affordability Calculator
Find your maximum borrowing capacity using 36% DTI rule.
Formula
Max payment = (Income×36%) - Debts; PV of payments
Example
$5K income, $500 debts, 7%, 30 yrs → ~$200K loan.
Understanding the Loan Affordability
The loan affordability math reveals what lenders prefer you do not quite calculate: how much of each payment is interest, how front-loaded that interest is, and what an extra principal payment is actually worth over the life of the loan.
How it actually works
Find your maximum borrowing capacity using 36% DTI rule.
The formula is straightforward arithmetic once the inputs are correct; the value of the calculator is in handling the algebraic manipulation reliably and removing transcription errors. Plug in your specific inputs above and the result appears as you type, so you can immediately see how each variable affects the answer.
What the numbers really say
Run a loan affordability of $200,000 at 6.5% over 30 years and the total paid becomes $455,089 - more than double the principal. Drop the rate by 0.5 percentage points to 6.0% and you save $46,825 over the life of the loan. Cut the term to 15 years at 5.75% and you save $193,267 in lifetime interest, even though the monthly payment is higher.
The deeper context most users miss
Beyond the basic amortization math, what makes loan calculators most powerful is comparing scenarios. The same principal, term, and credit profile evaluated across three different lenders typically produces APRs that vary 0.5-2 percentage points - which on a 5-year personal loan or a 30-year mortgage translates into thousands to hundreds of thousands of dollars in lifetime interest. The decision to shop rates aggressively before signing usually represents the single highest-return hour of work most borrowers will do for years. Banks, credit unions, and online lenders price differently because they have different funding costs, risk models, and customer acquisition strategies; none consistently offers the best rate.
What people get wrong
- Comparing only the monthly payment. A 30-year and 15-year loan have very different monthly payments and very different total interest. A small monthly difference compounds into a 6-figure lifetime difference.
- Confusing APR with the rate. The advertised rate is what you pay on the principal. APR includes lender fees, points, and most closing costs amortized over the loan life. APR is the apples-to-apples comparison.
- Underestimating early-year interest weight. In the first year of a long-term loan, less than 25% of each payment touches principal. Early payoff math ignores this asymmetry.
- Rolling fees into the loan principal. Closing costs and origination fees rolled in increase the loan balance, monthly payment, and total interest. Often paying upfront is cheaper than financing them.
When this calculator helps most
The loan affordability calculator is most useful when you are making a real decision - comparing options, sizing a commitment, sanity-checking a quote, or planning ahead. The output is precise to your inputs; the inputs themselves are the place to slow down. Spend extra time on the assumptions you are making about rate, term, timing, or context-specific variables - those swing the answer far more than the formula's arithmetic does. A 5% change in the input often produces a 10-20% change in the output, which means small input errors compound into large output errors.
Where the math comes from
The amortization formula M = P x [r(1+r)^n] / [(1+r)^n - 1] is documented in any introductory financial mathematics textbook (Brealey-Myers, Bodie-Kane-Marcus). The Consumer Financial Protection Bureau publishes the standard Loan Estimate disclosure form.
Questions and answers
Should I make extra principal payments?
Mathematically yes - every extra dollar paid early eliminates compound interest on that dollar for the rest of the loan. The opposing argument is opportunity cost: if you can earn more after-tax than the loan rate, investing wins.
What is the difference between APR and the interest rate?
The interest rate is what you pay on the principal. APR includes most fees (origination, points, sometimes mortgage insurance) amortized over the loan life. APR is the comparison number across lenders.
How does this calculator handle variable-rate loans?
It assumes a fixed rate. For variable-rate loans, calculate at the current rate to see today's payment, then run scenarios at higher rates to test what happens after a rate adjustment.
What happens if I miss a payment?
Most loans charge late fees (often 5% of the missed payment) and report missed payments to credit bureaus after 30 days. Repeated missed payments can trigger default clauses; understanding the loan terms before borrowing matters more than the calculator's output.
Should I refinance?
Run the same calculator at the new rate, then compute closing costs / monthly savings = months to break even. If you will stay past the break-even, refinancing wins; if not, the savings disappear into closing costs.
Sources & References
Authoritative references consulted in building this calculator and educational content. These are primary sources — check directly for the most current figures.
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