House shoppers hurrying to find dream homes before interest rates go higher often turn to online mortgage calculators offered by personal finance and real estate sites to get a feel for just how dreamy a home they can afford.
When they do, they risk getting bad information, experts say.
“Most online mortgage calculators fall short of giving all the information you need to estimate a house payment,” said Bob Harkson, a certified financial planner with Phase 2 Wealth Advisors in Gig Harbor, Washington.
Philip A. Seagraves, an economics and finance professor at Middle Tennessee State University Jones College of Business puts it more pungently.
“My opinion of the online calculators is that they’re really just click-bait to get people to a mortgage site,” Seagraves said.
What calculators omit
Calculators often leave out important costs and provide inaccurate estimates of others, according to critics.
“Taxes, insurance, homeowner association dues or condo management fees, utilities and general maintenance are variables not accounted for in traditional mortgage calculators,” said Sonu Mittal, head of home mortgage lending for Citizens Bank in Providence, Rhode Island.
Property taxes are often the biggest omission. Many online calculators have only three input fields — mortgage amount, interest rate and number of years. The resulting payment includes only principal and interest.
Yet monthly payments usually include a sizable contribution to an escrow fund for annual property taxes. Property taxes vary significantly depending on local tax rates, but can amount to thousands of dollars a year, adding hundreds a month to the mortgage payment.
Insurance is another important item often skipped. The costs of a homeowners’ insurance policy is usually also collected monthly into an escrow fund from which the annual premium is paid once a year.