Loan Amount Formula:
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The home loan amount formula calculates the maximum principal amount (P) you can borrow based on your affordable monthly payment (PMT), interest rate (r), and loan term (n). It's derived from the standard loan payment formula solved for principal.
The calculator uses the loan amount formula:
Where:
Explanation: The formula calculates the present value of an annuity (the loan) based on regular payments, interest rate, and term.
Details: Knowing your maximum loan amount helps in budgeting and home shopping. It ensures you look at properties within your payment comfort zone.
Tips: Enter your comfortable monthly payment, current interest rate, and desired loan term. All values must be positive (payment > 0, rate > 0, term 1-50 years).
Q1: Does this include taxes and insurance?
A: No, this calculates principal and interest only. Your actual payment will be higher with taxes and insurance included.
Q2: How accurate is this calculation?
A: It's mathematically precise for the inputs given, but actual loan offers may vary based on credit score and lender policies.
Q3: Why does interest rate affect the loan amount so much?
A: Higher rates mean more of your payment goes toward interest rather than principal, reducing the amount you can borrow.
Q4: What's a typical loan term?
A: Most home loans are 15 or 30 years, but other terms may be available.
Q5: Should I borrow the maximum amount calculated?
A: Not necessarily. Consider future expenses, job stability, and potential rate increases before borrowing your maximum.