1. What is the Bankrate Affordability Formula?

The Bankrate Affordability Formula calculates the maximum home price you can afford based on your monthly payment budget, interest rate, and loan term. It's derived from the present value of an annuity formula.

2. How Does the Calculator Work?

The calculator uses the Bankrate affordability formula:

Where:

• \( PMT_{Affordable} \) — Affordable monthly payment (USD)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Loan term in months

Explanation: The formula calculates the present value of a series of monthly payments at a given interest rate over the loan term.

3. Importance of Home Affordability Calculation

Details: Calculating home affordability helps prevent overborrowing and ensures your housing costs remain within your budget. It considers your payment capacity, loan terms, and interest rates.

4. Using the Calculator

Tips: Enter your maximum comfortable monthly payment, the expected monthly interest rate (annual rate ÷ 12), and the loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide the annual percentage rate (APR) by 12. For example, 6% APR becomes 0.06/12 = 0.005 monthly rate.

Q2: What's not included in this calculation?
A: This calculates principal and interest only. Property taxes, insurance, and HOA fees would be additional.

Q3: What's a good rule of thumb for housing affordability?
A: Many experts recommend keeping housing costs below 28% of gross monthly income.

Q4: How does loan term affect affordability?
A: Longer terms (30 years vs 15 years) typically allow higher purchase prices but result in more total interest paid.

Q5: Should I include my down payment in this calculation?
A: No, this calculates the loan amount. Add your down payment to this result to get total home price you can afford.