MORTGAGE CALCULATORS . . . ARE
Web-based mortgage calculators have proliferated during the past several
years. The calculators "suggest" that they assist a potential
borrower answer various financial questions: How much will monthly payments be?
How much can one afford to borrow when purchasing a home? Does it make sense to
refinance one's mortgage? What happens when "extra payments" are made
to a mortgage? In other words, real estate calculators allow borrowers to
"test" various financial scenarios.
An initial review of various real estate calculators indicate, that while
fun to experiment with, borrowers need to be cautious about relying upon their
results. Few mortgage calculators are accompanied by an explanation of what
assumptions are used in their calculations. Let's examine what must occur with
a calculator designed to assist a prospective borrower pre-qualify oneself.
Most calculator programs identify the "typical" qualifying ratios
that prospective borrowers "should" meet to be eligible for a loan.
Unfortunately, there are numerous variables that must accompany such a
qualification. For instance, does the calculation include mortgage insurance,
if required? Does it include the tax and insurance calculation for an impound
account when required? The more questions you are asked before you click
"calculate", the more reliable the outcome is likely to be, assuming
the accuracy of the information you entered.
Perhaps even more importantly, with the advent of automated qualifying
systems accompanied by the continued reliance upon credit scoring (see
"credit scoring" tip sheet), the "normal" qualifying ratios
often do not apply. Our anxiety, then, is that borrowers using a real estate
web calculator may believe erroneously they are either qualified for a loan or
unable to acquire a real estate loan.
Most persons today are seeking information regarding the traditional 30 year
fixed rate mortgage loan. If, as identified above, the results of real estate
calculators are suspect even with these fixed rate loans, imagine the
complications that are likely with an adjustable rate mortgage or a
"hybrid" mortgage (I.e.; a loan with a fixed rate for only one year,
three years, five years, etc.)? There is no way for a calculator to account for
all the possible variables. The best that some calculators can do is identify a worst-case scenario. While useful up to a point,
again, the reliability of the results depend upon the
calculator's internal assumptions and formulas coupled with the accuracy of the
user-entered information. It is easy to see that dependable results are
There are many other scenarios in which a web-based calculator could provide
unreliable results . . . when a jumbo loan is required or when evaluating
whether the borrower needs a sub-prime or niche type loan. The programs seem to
be unable to accommodate the varying Private Mortgage Insurance (PMI)
requirements depending upon the down payment amount provided (i.e.; using 97%,
95% or 90% Loan-to-Value financing). Finally, there are few calculators
available to calculate FHA or VA finance options.
The positive side to mortgage calculators is allowing borrowers to make
rough comparisons among various scenarios. Reviewing the interaction between
the cost of a home, the interest rate, the down payment and the monthly payment
can be instructional as well as fun. So, while real estate calculators
(especially those designed to "qualify" buyers) are easy and fun to
use, reliance upon them for qualification purposes could result in some
prospective borrowers disqualifying themselves unnecessarily or mis-believing that they are qualified. Either result would
be unfortunate. Thus, it is important that every prospective borrower contact a
mortgage lender rather than merely rely upon a mortgage calculator's
Humboldt Home Loans sees no reason to duplicate information that is already available
elsewhere on the internet. While there are many web sites offering finance
calculators, you may want to explore the following web sites for your
introduction to real estate calculators.
You will find variety of finance
calculators but remember the cautions advised above.