One of the most useful tools is a mortgage calculator. As a general rule a mortgage calculator is very user friendly. Establishing your borrowing capacity can be approached in a number of ways and is a relatively quick and simple process

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For example, in Australia a mortgage calculator will allow you to enter your net income and your current liabilities such as a car loan or credit card debt and will then quickly give you an idea as to the amount you can borrow. The mortgage calculator will also advise your monthly instalment amount and give you the total amount of interest you will pay over the loan term (this can be a bit frightening but can also act as a good motivator for you to make as many extra repayments as possible on your mortgage!)

A good mortgage calculator will represent the payments you make in graph form as well.

Another feature of a mortgage calculator could be a comparison calculation whereby you enter your existing bank's rate and term into the mortgage calculator together with the rates and term of any proposed new lender. The mortgage calculator will show you the amount of interest you will pay under each loan ? again a graph is often provided. This type of comparison mortgage calculator is quite sophisticated in that it has provision for a number of variables. For example you may compare your existing loan which may have an initial fixed rate term for 3 years @ 8.20% reverting to a 7.75% variable rate at the end of that 3 year period with a proposed loan which may have an initial 5 year fixed period @ 7.95% reverting to a 7.65% variable rate for the remainder loan term. The mortgage calculator will calculate the fixed interest payable for the first 3 or 5 years plus the interest for the remaining term at the variable rate and give you the total interest amount that you will pay for the full loan term on each mortgage. The mortgage calculator will again summarise this in graph form and advise the amount you will save or lose by staying with your existing lender.

If you are reasonably confident of your borrowing capacity you can cross check by using a mortgage calculator and simply entering the amount you wish to borrow. The mortgage calculator will then determine your monthly repayment amount. You can then determine yourself whether you have the capacity to service the loan taking into account your net take home pay and after allowing for your living expenses and repayments on any other liabilities.

Although a mortgage calculator can give you a guide to your borrowing capacity there are other things that a lender will take into consideration when you apply for a loan. For example the number of dependent children you have will impact on your borrowing capacity.

In Australia, a mortgage calculator is a good resource and you should certainly check them out to be confident that you are on the right track in relation to your estimates on borrowing capacity.