1. What is the Loan Amount Calculator?

This calculator determines the maximum loan amount you can afford based on your comfortable monthly payment, interest rate, and loan term. It helps you plan borrowing according to your salary and budget constraints.

2. How Does the Calculator Work?

The calculator uses the loan amount formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( PMT \) — Affordable monthly payment (USD)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Total number of payments (months)

Explanation: The formula calculates the present value of a series of future payments (annuity) discounted at the loan's interest rate.

3. Importance of Loan Calculation

Details: Calculating loan amount based on affordable payments helps maintain healthy debt-to-income ratios and prevents overborrowing relative to your salary.

4. Using the Calculator

Tips: Enter your comfortable monthly payment (typically 25-35% of your net monthly salary), annual interest rate, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What percentage of my salary should go to loan payments?
A: Financial advisors typically recommend keeping total debt payments below 36% of gross monthly income.

Q2: How does interest rate affect loan amount?
A: Higher rates reduce the loan amount you can afford for the same payment, while lower rates increase it.

Q3: Should I include taxes and insurance in the payment?
A: For mortgages, use PITI (principal, interest, taxes, insurance) in your affordable payment calculation.

Q4: What if I want bi-weekly payments instead?
A: Divide the annual rate by 26 and adjust the term to number of bi-weekly periods for calculation.

Q5: How accurate is this calculator?
A: It provides the mathematical maximum, but actual loan approval depends on credit score, DTI, and lender policies.