1. What is the Borrowing Capacity Calculator?

This calculator determines how much you can borrow for home improvements based on what you can afford to pay monthly, the interest rate, and loan term. It uses the standard loan principal formula to calculate borrowing capacity.

2. How Does the Calculator Work?

The calculator uses the loan principal formula:

Where:

• \( P \) — Loan principal (maximum borrowing amount)
• \( PMT \) — Affordable monthly payment
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the present value of a series of future payments at a given interest rate.

3. Importance of Loan Calculation

Details: Knowing your borrowing capacity helps with financial planning, ensures you don't overextend yourself, and allows you to compare different loan options effectively.

4. Using the Calculator

Tips: Enter your comfortable monthly payment, the annual interest rate (APR) you expect to get, and the loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Should I include taxes and insurance in the monthly payment?
A: This calculator focuses on principal and interest only. For complete budgeting, consider adding property taxes and insurance separately.

Q2: How does loan term affect borrowing capacity?
A: Longer terms increase borrowing capacity but result in more interest paid over the life of the loan.

Q3: What's a typical interest rate for home improvement loans?
A: Rates vary but typically range from 5% to 15% depending on credit score, loan type, and lender.

Q4: Are there fees not accounted for in this calculation?
A: Yes, most loans have origination fees or closing costs that would reduce the actual amount you receive.

Q5: How accurate is this calculator?
A: It provides a good estimate for standard fixed-rate loans, but actual loan offers may vary based on lender policies.