Calculating the Affordable Monthly Mortgage Payment

Oct 13, 2025 by recoveryshake.com 127 views

Introduction

Estimating the affordability of a home purchase is a crucial step in the home buying process. It involves determining the maximum amount that a buyer can afford to spend on a home, including the monthly mortgage payment, the mortgage amount, and the home purchase price. In this article, we will use Exhibit 7-6 and Exhibit 7-7 to estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for a given situation.

Assumptions

For the purpose of this example, we will assume the following:

The buyer has a 20% down payment.
The buyer has a 30-year fixed-rate mortgage with an interest rate of 4%.
The buyer's monthly gross income is $8,000.
The buyer's monthly debt-to-income ratio is 36%.
The buyer's credit score is 700 or higher.

Calculating the Affordable Monthly Mortgage Payment

To calculate the affordable monthly mortgage payment, we will use the following formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

M = monthly mortgage payment
P = principal loan amount
i = monthly interest rate
n = number of payments

Using Exhibit 7-6, we can calculate the monthly interest rate as follows:

i = annual interest rate / 12 = 4% / 12 = 0.003333

Now, we can plug in the values to calculate the monthly mortgage payment:

M = P [ 0.003333(1 + 0.003333)^360 ] / [ (1 + 0.003333)^360 – 1]

Assuming a principal loan amount of $200,000, we get:

M = $955.41

Calculating the Affordable Mortgage Amount

To calculate the affordable mortgage amount, we will use the following formula:

P = M / [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

P = principal loan amount
M = monthly mortgage payment
i = monthly interest rate
n = number of payments

Using the values calculated earlier, we get:

P = $955.41 / [ 0.003333(1 + 0.003333)^360 ] / [ (1 + 0.003333)^360 – 1] = $200,000

Calculating the Affordable Home Purchase Price

To calculate the affordable home purchase price, we will use the following formula:

HP = P + down payment

Where:

HP = home purchase price
P = principal loan amount
down payment = 20% of HP

Assuming a 20% down payment, we get:

down payment = 0.2 * HP = $40,000

Now, we can plug in the values to calculate the home purchase price:

HP = P + down payment = $200,000 + $40,000 = $240,000

Conclusion

In conclusion, using Exhibit 7-6 and Exhibit 7-7, we have estimated the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for a given situation. The results are as follows:

Affordable monthly mortgage payment: $955.41
Affordable mortgage amount: $200,000
Affordable home purchase price: $240,000

Exhibit 7-6: Monthly Interest Rate

Annual Interest Rate	Monthly Interest Rate
4%	0.003333
5%	0.004167
6%	0.004833

Exhibit 7-7: Number of Payments

Loan Term	Number of Payments
15 years	180
20 years	240
30 years	360

References

[1] Exhibit 7-6: Monthly Interest Rate
[2] Exhibit 7-7: Number of Payments

Introduction

In our previous article, we discussed how to estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price using Exhibit 7-6 and Exhibit 7-7. In this article, we will answer some frequently asked questions (FAQs) related to estimating affordable mortgage payments and home purchase prices.

Q: What is the difference between a mortgage payment and a home purchase price?

A: A mortgage payment is the amount paid each month to repay the loan, while the home purchase price is the total cost of the property.

Q: How do I calculate the affordable mortgage payment?

A: To calculate the affordable mortgage payment, you can use the formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

M = monthly mortgage payment
P = principal loan amount
i = monthly interest rate
n = number of payments

Q: What is the monthly interest rate?

A: The monthly interest rate is the annual interest rate divided by 12. For example, if the annual interest rate is 4%, the monthly interest rate would be 0.003333.

Q: How do I calculate the affordable mortgage amount?

A: To calculate the affordable mortgage amount, you can use the formula:

P = M / [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

P = principal loan amount
M = monthly mortgage payment
i = monthly interest rate
n = number of payments

Q: What is the difference between a 15-year and 30-year mortgage?

A: A 15-year mortgage has a shorter loan term and a higher monthly payment, while a 30-year mortgage has a longer loan term and a lower monthly payment.

Q: How do I calculate the affordable home purchase price?

A: To calculate the affordable home purchase price, you can use the formula:

HP = P + down payment

Where:

HP = home purchase price
P = principal loan amount
down payment = 20% of HP

Q: What is the down payment?

A: The down payment is the amount paid upfront to purchase the property. It is typically 20% of the home purchase price.

Q: How do I determine the affordable home purchase price?

A: To determine the affordable home purchase price, you can use the following steps:

Calculate the affordable mortgage payment using the formula M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Calculate the affordable mortgage amount using the formula P = M / [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Calculate the down payment as 20% of the home purchase price
Calculate the home purchase price using the formula HP = P + down payment

Q: What are some common mistakes to avoid when estimating affordable mortgage payments and home purchase prices?

A: Some common mistakes to avoid when estimating affordable mortgage payments and home purchase prices include:

Not considering the monthly interest rate
Not considering the loan term
Not considering the down payment
Not considering the credit score
Not considering the debt-to-income ratio

Conclusion

In conclusion, estimating affordable mortgage payments and home purchase prices requires careful consideration of several factors, including the monthly interest rate, loan term, down payment, credit score, and debt-to-income ratio. By using the formulas and steps outlined in this article, you can make an informed decision about your home purchase and avoid common mistakes.

References

[1] Exhibit 7-6: Monthly Interest Rate
[2] Exhibit 7-7: Number of Payments
[3] [Your Source]