It’s true: Buying a home is one of the most important financial decisions a person will make in his or her lifetime. But shouldn’t selecting a mortgage be the second? Lenders often bombard consumers with lender advertisements and complimentary tools in an effort to attract more business. One common such tool is the online mortgage calculator. But the estimates these online calculators provide do not always deliver a complete picture.
The home buying process can be complicated and time-consuming. Many potential homebuyers conduct a great deal of research and commit many hours to choosing the right home. By contrast, the average home buyer does not apply the same thoroughness to determine exactly how much home they can afford – a crucial first step of the home buying experience.
The mathematical formula for calculating a potential monthly mortgage payment can be complex and difficult to understand. Online mortgage calculators can do the math for you. Many may not give you an accurate and dependable payment estimate but it is a good starting point.
The Consumer Financial Protection Bureau (CFPB), a U.S. government agency that ensures banks, lenders and other financial companies treat consumers fairly, has concerns regarding some calculators. According to the CFPB, many mortgage calculators only determine the principal and interest payments, omitting many other substantial costs and taxes and ultimately underestimating monthly payments. These other costs, which can add up to substantial increases to monthly payments, include property taxes, homeowner’s insurance, mortgage insurance and condo or homeowner association dues.
The CFPB has also pointed out that in many cases, costs that are due when a loan is closed are not rolled into the loan itself. These expenses include origination and lender charges, points, third-party closing costs, taxes and government fees and prepaid expenses and deposits. The CFPB says that monthly mortgage payments should not be mysterious, and suggests that while online mortgage calculators can be helpful for estimates, consumers should make sure that they are considering all the additional costs of buying a home before they make decisions.
If you have questions about financing a home, find a Motto Mortgage office near you.