Mortgage calculators contribute in critical financial decisions such as refinancing, calculating monthly payments of mortgage and interest rates. But we often fail to notice the important details, and mortgage calculators may ignore these details which will cause trouble in a long run. There is no need to do the math by hand, but you need to use a mortgage calculator by considering the below points.
- Expenses in a mortgage calculator
A mortgage payment consists of 5 different expenses which include principle, interest payments, insurance, real estate taxes and private mortgage insurance. Make sure the mortgage calculator factor in all of these potential payments.
- HOA (Homeowners Association) Fees
The key is to make sure you consider these fees while making a purchasing decision. HOA fees can range from $200 to $400 a month or more depending on the area/locality. Many calculators don’t include these fees.
- Getting the right Interest Rates
This is one of the house hunting mistakes to avoid, as you might not be aware of the interest rate on your eventual mortgage. Factors that affect interest rates are as follows:- Amount of the down payment, your FICO credit score, cost of the home, location of the home, types of mortgage, your income and your debts.
- Taxes are deductible
Mortgage interest on most owner-occupied homes is deductible for those who itemize their deductions. For instance, 5% interest translates into 4% if the person is paying 25% tax. This makes a difference in monthly payments and taxes are often ignored in mortgage calculators.
- Closing costs are mandatory
Last but not the least, closing costs is underestimated by most of the mortgage calculators. For example, if the purchase price is $50,000, closing costs can be around $13,000, and are broken down as follows:-
- Bank fees: – $4,138
- Third–party fees: – $6,384
- Prepaid interest and insurance: – $1,470