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That Online Mortgage Calculator Is Probably Lying to You

Seriously, what is the point of these things, beyond building up our dreams to crush them?

If you’ve ever at least had a passing interest in buying a home, you’ve probably tried to use one of those mortgage calculators online to see how much of a home you can actually afford. And holy crap, do they suck! Take this one from CNN, for example. Go ahead, plug in a few numbers. Does it make any sense whatsoever? Is it in any way even vaguely helpful for it to tell you that you can afford double what any reasonable, ethical financial adviser says you can?  

What use, then, are these things to anyone? And why do they usually suck so hard? We calculated some noticeably more accurate answers.

So are mortgage calculators accurate, then? Nah, I’m just kidding, tell me why they suck.

Let’s just call these calculators what they are: clickbait. That’s according to Philip A. Seagraves, an economics and finance professor at Middle Tennessee State University’s Jones College of Business. In a CNBC article on the matter, he stated, “My opinion of the online calculators is that they’re really just clickbait to get people to a mortgage site.”

And lo, if you’re looking for clickbait to bring an unsuspecting nation of prospective homebuyers to your site, it’s not even hard to procure. Any loan officer, never mind bank, can easily arrange to add one. Here’s a web developer that designs them for your website, and refers to them as “inbound marketing” for “capturing leads.” “You may be surprised at how high the conversion rates on interactive calculators are,” it says on the website. 

Lovely. Okay, they’re largely marketing junk, got it. Why exactly do mortgage calculators suck, though?

There’s no good explanation for why some of them are just useless random number generators, beyond the fact that, hey, many, many companies don’t give the slightest shit about honesty or facts when trying to pry money out of your tightly clenched fists. What’s worse is that even the ones that are somewhat based in reality (with the exceptions of U.S. Mortgage Calculator, Dave Ramsey, the VA and some others) aren’t that great either, according to the Consumer Financial Protection Bureau.

Do tell.

Well, to start with, most don’t give you a complete picture of the costs, meaning that a homebuyer will be on the hook for a lot of shit that these calculators don’t bother to factor in. 

Like what?

Lots of mortgage calculators just calculate the principal and interest — that’s leaving out many other significant costs of the home. In fact, the monthly payment might even end up being double the sum of the principal and interest, after you add in all those other things.

Yikes. Other things such as?

You ready? There’s private mortgage insurance, which you’ll need to buy if you’re putting less than 20 percent down (it usually ends up costing, on an annual basis, up to 1 percent of the loan amount, which really adds up over time). There’s also homeowner’s insurance. There’s also — duh — property taxes. If you’re buying a condo, there will probably be HOA dues. Utilities, too, if we’re being thorough.

Then there are a lot of closing costs involved at the end of the sale, which don’t really factor into the total monthly payment, but they sure can’t be ignored when you’re buying a home. Those include origination and lender fees; any points you buy to lower the interest rate; third-party stuff like the title insurance, home inspection and appraisal; any local real estate transaction fees; and prepaid expenses like the first year’s premium, the prorated mortgage interest between the time you close and the end of the first month, and initial deposits for property taxes.

One sec, need to go sob in a dark room for a while.

I feel you.

But look, surely even computing just the principal and interest is, I dunno, somewhat useful?

Yyyyes, assuming the interest is correct — but it might not be! The Consumer Financial Protection Bureau has a decent interest rate tool, but in any case, keep in mind that the interest rates you see usually apply only for those who can afford a down payment of 20 percent, and have an excellent credit score.

And what if a mortgage calculator actually does factor in all those extra costs?

The data still might not be accurate! For example, errors might exist from the local property tax database (or from lack of updates to it).

What about calculators for specific homes?

Zillow’s popular Zestimates, which people tend to view as almost an appraisal of a home’s value (though Zillow disputed this in court) might not accurately value a particular home because of this records issue; or it might not recognize improvements made to a home, like adding an extra bathroom; or it might not have a lot of data to work with for neighborhoods that don’t have a lot of recent home sales. 

It’s probably not a coincidence that algorithms lowball the value of specific homes, or that calculators spit out a low number by omitting crucial information. Again, it’s not unfair to assume it’s all for marketing purposes. Every retailer ever in human history knows that it’s good business to advertise low prices and stupid to advertise anything else — it gets the customer in the door, or clicking around on your website. Once a customer lands on the spider web, it’s game on for a realtor, lender or any kind of salesperson.

So expecting a mortgage calculator to be accurate is kinda hopeless, then.

Well, they can definitely give you a false sense of hope. Although if you get down the road very far and actually apply for a loan, soon enough, the lender will pour tepid water all over your hopes of scoring the home that that magic mortgage calculator on the internet assured you you could afford: Lenders are required to provide a loan estimate form to borrowers within three days, and those include taxes and insurance amounts (in addition to principal and interest). Following the Great Recession, up until which lenders were handing out loans to people the way Oprah gives away Caribbean vacations, the chances nowadays of closing a sale, only to find yourself way in over your head, are greatly reduced. 

But, bottom line, ignore the mortgage calculators?

You can play around with them if you like — just know what you’re getting into, and what they’re actually for. If you’re serious about buying a home, talk to an actual human for a much more accurate idea of what you can actually afford. And remember the golden rule: If it’s on the internet, assume you can’t entirely trust it.

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