Definition: The mortgage to income ratio (MIRR) calculator, also known as a mortgage-to-income (MI) ratio, is a financial metric used to evaluate the affordability of purchasing a home for an individual or family based on their income.
Here's what the MIRR calculator does:
1.
Calculate Income:
The first step in calculating the MI is to determine your total monthly income before taxes and insurance payments, which can be obtained from your tax return and financial statements. For example, if you make $80,000 per year with a 20% tax rate, your total income would be $160,000.
2.
Calculate Mortgage Payments:
The next step is to determine the monthly mortgage payments for your home loan, taking into account all types of financing (e.g., fixed-rate, adjustable-rate, or jumbo). This calculation will depend on your loan amount, interest rate, and the length of the term (from 15 to 30 years).
3.
Calculate Mortgage Balance:
Once you have calculated your total monthly income, you can calculate your mortgage balance by subtracting your total monthly mortgage payments from your total monthly income.
4.
Divide by Total Income:
The final step is to divide the mortgage balance by your total monthly income, and this ratio will give you an estimate of how much you can afford to borrow based on your income alone.
The MIRR calculator provides a useful way to compare different financial scenarios such as purchasing a home with a fixed-rate mortgage versus an adjustable-rate mortgage or with a private mortgage insurance policy. It helps homeowners understand the potential cost and affordability of their housing decisions in terms of monthly payments, interest rates, and loan-to-value ratios.
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