How Accurate is a Mortgage Loan Calculator?
Buying a new home is one of life’s biggest milestones and a major investment. However, the costs associated with buying a home have continued to increase at a rapid rate. With the growth of remote work, areas that were once considered affordable are also seeing spikes in property values. In January 2021, the National Association of Realtors reported that the average selling price of a single-family home in the U.S. was $303,900.
That’s a substantial price tag for anyone to take on and the financial responsibility can often be one of the most challenging aspects of home buying. Crunching the numbers, budgeting, and planning to manage new expenses can be overwhelming, which is where a mortgage loan calculator can be extremely helpful. Not only does a mortgage loan calculator estimate your mortgage payments, it also factors in taxes, varying interest rates, points, HOA fees if applicable, and other additional costs associated with your home payments.
Financing a Home Purchase with a Mortgage Loan
Most buyers approaching a home purchase cannot afford to pay in cash, so they have to take out a mortgage. In 2020, 87 percent of home buyers financed their property purchase with a home loan.
There are multiple factors that influence a mortgage’s terms and conditions, including:
- The property that the mortgage will fund.
- The borrower’s financial profile.
- The market rates at the time of application.
- The specific lending institution.
- The length of the loan’s lifetime.
Obtaining a mortgage is a layered and complex process, especially for first-time home buyers, that’s why many aspiring buyers use a mortgage calculator to help add some clarity to the process.
Planning with a Mortgage Loan Calculator
Referencing a mortgage loan calculator helps buyers to see a clear picture of the numbers related to their home loan. A mortgage calculator brings a necessary dose of reality to the table. It breaks down complex numbers and equations into a simplified financial plan that estimates what the month-to-month breakdown will look like.
Instead of saying a home costs $250,000 with an interest rate of 2.5 percent and a loan period of five years, a mortgage calculator can outline the monthly expenses down to the dollar.
Beyond the monthly payment amount, a good mortgage calculator also shows smaller details like down payment requirements, closing costs, taxes, and service fees.
This can be a huge advantage to buyers as it allows them to strategize accordingly and ensure they will be able to pay the loan back.
Is a Mortgage Loan Calculator Reliable?
Mortgage calculators can be a very useful tool when you’re starting to budget for a home. But since they are used in relation to large investments, they are not completely accurate. It’s vital that home buyers understand the limitations of a calculator and do their own due diligence to ensure they’re not setting their sights on a home they can’t afford.
Not all calculators will generate the same results. The process, data, and accuracy will vary based on which calculator is used, so it’s also a good idea to use several calculators and see how their estimates vary.
Mortgage calculators can be misleading if they don’t factor in all of the necessary information. So, it’s important that aspiring buyers analyze the results and ensure that all the relevant considerations are being taken into account.
10 Accuracy-Boosting Factors to Look for in a Mortgage Calculator
The most reliable mortgage calculators are transparent and give you a complete breakdown of all the costs that have been accounted for, so you can verify the accuracy of the calculation. That way, you can see how well the numbers reflect your individual situation.
Here are 10 factors that should be included in the calculations to ensure the most accurate and reliable results from a mortgage loan calculator:
- Taxes
- Insurance
- Interest rates
- Property value
- Payment schedule
- Annual percentage rate (APR)
- Monthly payment amount
- Total loan costs
- Annual payment overview
- Down payment amount
If you work with a mortgage loan calculator that takes these 10 factors into account, you’ll have a clear picture of what to anticipate when you start speaking with lenders. Not only does this simplify the process, it also mitigates the risk of any big surprises further down the road.
If you’re ready to start planning your home loan, click here to use our mortgage loan calculator. We compare the loan details of reputable lenders using their current rates to give you the most accurate and reliable picture of your options.
