Should I Use a Mortgage Calculator?

 In First-Time Home Buyers

Almost everyone who contacts us for a mortgage asks which mortgage calculator we recommend. Mortgage calculators are a good tool to use – in theory. In practice, however, they often fall far short of what you need. Here’s what you need to know before using one. 

What Does a Mortgage Calculator Do?

A mortgage calculator is supposed to tell you how much your mortgage payment is going to be. It’s very hard to shop for a house without having a budget, and your housing payment is a very important part of your budget, simply because it’s probably the biggest monthly bill you have.  Your new housing payment is certainly not something you should ignore.

The problem with mortgage calculators is they are based on assumptions, and if you have a lot of assumptions when you’re trying to calculate something, you are very likely to get a wrong answer. After all, an assumption is just a guess. Here are some of the things you need to make assumptions about when using a mortgage calculator:

  • Purchase price
  • Loan term
  • Interest rate
  • Down payment amount
  • Mortgage insurance payment
  • Homeowner’s insurance payment
  • Property taxes payment
  • HOA fees

The first two (purchase price and loan term) are easy to get correct.  You can see how much the listing price is for any home by looking online at listings, and most people get a 30-year fixed rate loan, so you can fairly accurately assume you will get a 30-year loan as well.

Now the Problems Start

The interest rate is different for just about everyone, because there are so many things that go into determining your interest rate:

  • Your middle credit score (do you get all three scores when you get your scores yourself?)
  • The percentage of the down payment (0%, 3%, 3.5%, 5%, 10%, 15%, 20%, 25%, or something else?)
  • The size of the loan
  • The type of property (single family, townhouse, or condo)
  • The occupancy type (primary residence, second home, or investment property)
  • The rate lock period
  • Whether you are paying points or not
  • Whether there is subordinate financing (a second mortgage) or not
  • Whether the loan is for a purchase or a refinance transaction
  • The type of loan (conventional, jumbo, FHA, VA, CHFA, or something else)

The same goes for the mortgage insurance amount.  Here are some of the things that determine how much you pay for mortgage insurance:

  • Loan term
  • Middle credit score
  • Down payment percentage
  • Debt-to-income ratio
  • Number of people applying for the loan
  • Occupancy type
  • Whether the loan is for a purchase or a refinance

Figuring out your homeowner’s insurance payment is difficult unless you are an insurance agent (it’s usually higher than most people guess).

Property taxes are easy to find out by looking online.  However, it’s important to note that every property has different taxes. If you are looking at multiple properties, you need to look up every one of them to get an accurate tax amount.

You’re Probably Going to be Wrong

Considering how many factors go into figuring out the various parts of your mortgage payment, you will probably be incorrect with your assumptions. We have never talked to anyone (and we have been involved with thousands of mortgages) who was able to come even close to figuring out what their mortgage payment would be by themselves, regardless of which mortgage calculator they or their real estate agent used.

The best advice we can give anyone when it comes to figuring out your mortgage payment is to call us and ask.  It’s part of our job, and we are happy to figure out your payments for you. If you prefer to text or email us, that’s fine, too. Just don’t make the mistake of assuming you are getting accurate results from a mortgage calculator, because you probably are not.

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