Mortgage affordability

Mortgage affordability is the estimated maximum loan a borrower can support given their income, existing financial commitments, the prevailing interest rate, and their target loan term. It’s expressed as a maximum loan size and an associated monthly repayment.

How it’s calculated

Affordability starts with monthly gross income, subtracts existing monthly commitments (other debt repayments, child support, etc.), and applies a chosen debt-to-income (DTI) cap — the maximum share of gross income the borrower is willing to allocate to debt repayments. The remaining envelope is the maximum monthly mortgage payment they can support.

That maximum payment is then converted into a maximum loan using the reverse-annuity formula:

Maximum loan = monthly payment × ((1 − (1 + r)^−n) / r)

where r is the monthly interest rate and n is the number of monthly periods over the loan term.

What affordability is not

• It is not a lending decision. Lenders apply their own assessment criteria — credit history, employment status, policy stress tests, product-specific rules — that often produce a different (usually lower) number than a self-reported affordability calculation.
• It is not a target. Most financial advisers recommend borrowing 70–80% of the calculator’s maximum to leave headroom for rate rises and life changes.
• It does not guarantee servicing. A loan that fits today’s affordability calculation can become unaffordable if rates rise, income falls, or major expenses emerge.

Levers that change affordability

• Income — higher gross income directly increases the maximum payment and the maximum loan.
• Existing expenses — every dollar of existing monthly commitment reduces the affordable mortgage payment dollar for dollar.
• DTI cap — a more aggressive cap (40%+) supports a larger loan but leaves less slack for shocks.
• Interest rate — every 1 percentage point of rate movement at typical mortgage levels changes the maximum loan by roughly 10–12%.
• Loan term — extending from 25 to 30 years adds roughly 10–15% to the maximum loan, at the cost of significantly more total interest.
• Deposit size — doesn’t directly change monthly affordability, but shifts the property price you can target and may unlock lower rates at lower loan-to-value ratios.

Why affordability matters

Affordability bridges the gap between “what you want to buy” and “what your income realistically supports.” A robust affordability check, run before approaching a lender, frames the entire property search realistically and avoids the wasted effort of falling in love with properties that are out of reach. It also surfaces the implicit choices — DTI cap, term length, deposit — that shape the trade-off between property quality and financial slack.