Loan Affordability Calculator
Calculate the maximum loan amount you can afford based on your desired monthly payment, interest rate, and term.
How to use this tool
- Enter max monthly payment, annual interest rate and loan term in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your maximum loan amount and the full breakdown beneath it.
Flip the loan calculation: enter what you can afford to pay per month and find out how much you can borrow.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Maximum Loan = PMT × (1 − (1 + r)−n) ÷ r (when r > 0)
Maximum Loan = PMT × n (when r = 0)
Total Paid = PMT × n | Total Interest = Total Paid − Maximum Loan
Where PMT = monthly payment, r = Annual Rate ÷ 12, n = Years × 12.
How it works
This calculator inverts the standard loan payment formula to find the maximum principal you can borrow given a target monthly payment. It uses the present value of an annuity formula: the payment is multiplied by the discount factor that sums n monthly periods at the monthly interest rate. Total interest paid is the difference between all payments made and the original loan amount. Results assume a fixed interest rate for the full loan term with no extra payments or fees.
Worked example
- Maximum monthly payment: $1,000. Annual rate: 0%. Loan term: 5 years (60 months).
- At 0% rate: maximum loan = $1,000 × 60 = $60,000.
- Total paid = $1,000 × 60 = $60,000.
- Total interest = $60,000 − $60,000 = $0.
Maximum loan: $60,000 | Total interest: $0 | Total paid: $60,000
Common mistakes to avoid
- Entering a monthly payment that excludes property tax and insurance (PITI), so the calculated max loan exceeds what the lender will approve once escrow is added.
- Using an annual interest rate directly instead of the monthly rate r = annual / 12, which severely understates the maximum loan amount.
- Ignoring origination fees and closing costs that reduce the net loan proceeds, meaning the affordable loan amount overstates usable funds.
Key terms
- Loan affordability
- The maximum loan principal a borrower can take on while keeping monthly payments within a self-imposed budget limit.
- Amortization
- The process of paying off a loan through scheduled periodic payments that cover both principal and interest, gradually reducing the balance to zero.
- Principal
- The original sum of money borrowed, excluding interest.
- Debt-to-income ratio (DTI)
- Monthly debt payments divided by gross monthly income, expressed as a percentage; lenders typically require a DTI below 43% for mortgage qualification.
- Annual percentage rate (APR)
- The yearly cost of borrowing expressed as a percentage, including interest and certain fees; used to compare loan offers on a standardized basis.
Frequently asked questions
- How is maximum loan calculated?
- This uses the present value of an annuity formula: PV = PMT × [1 - (1+r)^-n] / r. It tells you the loan amount whose payments exactly match your target monthly payment.
- Should I borrow the maximum I qualify for?
- Not necessarily. Borrowing the maximum leaves no buffer for unexpected expenses. Consider borrowing 80-90% of the maximum to maintain financial breathing room.