Online mortgage calculators are often touted as being helpful tools to help potential buyers determine their monthly housing costs, easy to use and free. BUT, do they REALLY give prospective homeowners the necessary information to estimate their monthly housing costs?
Philip A. Seagraves, economics and finance professor at Middle Tennessee State University’s Jones College of Business, answered, in so many words, “no.” Seagraves said, “My opinion of online calculators is that they are really just click bait to get people to a mortgage site.”
Usually, online mortgage calculators have three input fields: mortgage amount, interest rate and number of years. The resulting payment information provided from those three input fields only includes principal and interest totals.
“Taxes, insurance, home owner association or management fees (most always an extra cost for residents in condominium and/or master-planned communities), utilities, and general maintenance are variables not accounted for in tradition mortgage calculators,” said Sono Mittal, head of home mortgage lending for Citizens Bank in Rhode Island. And without those expenses added on to principal and interest totals, prospective homeowners may not be able to cover their monthly mortgage payments.
The biggest omission in traditional mortgage calculators is property taxes. Not including property taxes can amount to thousands of dollars annually or hundreds of dollars monthly. The saving grace here is that monthly mortgage payments often do include a sizable contribution to an escrow fund from which the borrower can draw to pay annual property taxes.
Mortgage calculators often skip insurance costs as well. These too are sometimes collected monthly from the mortgage payment into an escrow fund from which the annual insurance premium is paid. What some prospective homeowners may not know is that, depending upon where they live, they may be required to buy hurricane, flood, earthquake and/or fire insurance “on top of” their “regular” insurance.
Prospective borrowers need to know that mortgage payments may also include points and other closing costs not paid in cash at the time of the transaction closing. They also need to factor in utility costs, ongoing maintenance costs such as a pool service and unexpected repair costs.
The bottom line here is that online mortgage calculators are not the last word in helping buyers figure out their ongoing housing costs. Mark Burrage, executive director of mortgage digital experience for USAA in Texas, thinks mortgage calculators are useful for comparing interest rates but nothing beyond that.
“Mortgage calculators don’t miscalculate. They just mislead.”
Whose job is it to inform prospective buyers about including ALL their housing costs when determining how much house they can afford? You, the real estate agent/broker.