Mortgage Calculator Why Do Mortgage Calculators Use Gross Income? When lenders calculate a borrower's ability to make mortgage payments, they typically look at gross income (income before taxes and other deductions). This is because lenders are more comfortable evaluating a borrower's wages prior to taxes and other payments that could be automatically taken out of the borrower's paycheck, such as Social Security or Medicare. Gross Monthly Income: Mortgage Interest Rate: Loan Term: 15 Years 20 Years 25 Years 30 Years Maximum monthly loan payment: $ // Calculates the maximum loan payment // based on user inputs of gross monthly // income, mortgage interest rate, and loan term function calculate() { var income = document.getElementById('income').value; var rate = document.getElementById('rate').value; var term = document.getElementById('term').value; var maxPayment = (income * .28) / (1 - Math.pow(1 + (rate/100)/12, -term * 12)); document.getElementById('payment').innerHTML = maxPayment.toFixed(2); } What Is a Mortgage Calculator? A mortgage calculator is a tool available to those who are looking to purchase a home. It is used to estimate the monthly payments one would need to make in order to pay back their home loan. It can also estimate closing costs, the upfront cash one will need to purchase a home, and the total cost of a loan. It is important for anyone looking to purchase a home to understand these costs and to make responsible borrowing decisions. Why Do Mortgage Calculators Use Gross Income? Mortgage calculators will typically require the user to enter their income in order to properly estimate the amount of payment one will need to make in order to pay back the loan. It is important for the calculator to take gross income into account when making these estimates in order to determine how much a user can realistically afford in terms of monthly payments. Gross income is generally used by mortgage calculators because it reflects one’s total income before taxes and other deductions have been taken out. This offers a more accurate picture of one’s actual income and allows the calculator to determine a monthly payment that is realistic for the user’s financial situation. The user should take into account other non-essential costs that may apply as well as any taxes or deductions they might face that have not yet been taken out of their gross income in order to arrive at an accurate estimate. What Impacts the Monthly Payment of a Mortgage? In addition to taking gross income into account, a mortgage calculator will also take into account other factors in order to determine the monthly payment one will need to make in order to pay back their loan. These factors include the loan amount, the interest rate, the loan term, and any applicable taxes and insurance. It is important to understand the correlation between these factors and a home loan's monthly payment in order to make an informed decision. The loan amount is the amount one intends to borrow in order to purchase a home. This is the amount that will determine the amount of the monthly payment; the larger the loan, the larger the monthly payment. The interest rate on the loan will also determine the monthly payment; the higher the interest rate, the higher the monthly payment. The loan term is the time frame in which one has to pay back the loan; the longer the loan term, the lower the monthly payment. Finally, any applicable taxes and insurance will factor in to the monthly payment as well. Conclusion It is important for anyone who is looking to purchase a home using a loan to understand why mortgage calculators use gross income, and how the loan amount, interest rate, loan term, and taxes and insurance all factor into the monthly payment. With this information, one can properly estimate the monthly payment they can make and make an informed decision about their home loan.