Time for more mortgage Q&A: “Are mortgage calculators accurate?”
But not all mortgage calculators are created equal – in fact, some totally miss the mark. For that reason, it’s important to understand what you’re actually calculating to ensure you get the numbers right. Or at least close to right…
Let’s start with the basics. Any mortgage calculator worth its salt should let you calculate principal, interest, taxes, insurance, and even include PMI and HOA dues. Why? Because these are all very real costs.
If it simply shows you principal and interest, you’re missing a pretty decent chunk of the payment, assuming your mortgage has impounds (which many do), or if you live in a condo or put less than 20% down and didn’t opt for LPMI.
I conducted a little research on Google by looking up the first few mortgage calculators that came up in their search.
Results Definitely May Vary
The first result, which was from MortgageCalculator.org, asked for a home value, a loan amount, an interest rate, loan term, and start date. It also assumed a 1.25% property tax rate and 0.5% for PMI.
My issue with this calculator is that it assumes the user knows a thing or two about mortgages, which I know isn’t the reality.
Many people don’t know the first thing about mortgages, and most certainly don’t know what PMI is. Or if it costs 0.5% of the loan amount.
The PMI thing is a problem because borrowers may not actually have to pay it, so including it by default can throw the numbers off in a hurry.
Strangely, when I changed the PMI value, the monthly payment output from the calculator was the same because this calculator doesn’t actually add it to your payment, it simply displays the monthly cost of the PMI in the details below the total payment.
My guess is most users probably won’t see that, or take the time to add the two numbers up to see what their true monthly payment might be with PMI included.
Homeowners insurance is also ignored here, which is mandatory for all mortgagors, so the chances of this calculator being accurate are slim to none.
It might give you a decent ballpark, depending on your loan and LTV, but people don’t use calculators to get rough estimates.
Next up in the search results was Zillow’s mortgage calculator, which included property taxes and homeowners insurance by default. To me this one is already superior because it includes the full PITI.
One slight difference was that they calculated property taxes at 1.2%, as opposed to 1.25%. No big deal, but still another variance.
Their homeowner’s insurance estimate seemed pretty accurate for me, in California, but I know other states, like Texas, have much higher rates. So again, the numbers can get thrown off pretty quickly here as well.
However, their calculator was much more intuitive with regard to PMI. If you entered in a 20% or higher down payment, it simply ignored PMI. If you put anything lower, it calculated it at around a half a percent, but also adjusted it based on loan amount and down payment.
Still, actual numbers can and will vary, so these are just estimates once again. Also, you might not have to pay PMI, even if putting down less than 20%, so it might not apply.
In the screenshots posted above, the first image is from Zillow’s calculator with only principal and interest accounted for. The second image shows the same monthly payment with taxes, insurance, PMI, and HOA dues included. Once all costs are factored in the monthly payment is nearly 50% higher.
So yes, it’s very important to consider and calculate all potential costs, and to utilize a calculator that gives you the option to include them all.
The third result, which was a mortgage calculator from Bankrate, simply provided the principal and interest payment. Really bare bones.
This is fine if you don’t have impounds and pay insurance and taxes on your own, but otherwise it greatly diminishes what you’ll actually have to pay each month, as illustrated above.
It also ignores the possibility of PMI and HOA dues, both of which could be costly expenditures to ignore.
By the way, none of these calculators are geared toward FHA loans, which come with both upfront and monthly mortgage insurance premiums that will completely change the picture. So if you’re going with the FHA, use a calculator designed for FHA loans.
Zillow Is Pretty Spot On, But Ignore the Estimates on Their Listing Pages
All in all, I felt that Zillow’s calculator was the most thorough and accurate, though it did leave plenty of room for error if used incorrectly.
However, I should point out that the estimated mortgage payments you’ll find toward the top of individual listing pages on Zillow (click on the star icon directly below the images) seem to be off when it comes to taxes and insurance.
They always greatly underestimate the cost, and I have no idea why. But if you scroll down to the bottom of the listing page you should see a more accurate number that is pulled directly from the county assessor’s office in the “Home Expenses” section.
Remember, if you’re serious about determining what you can afford, don’t just use a calculator, get the actual numbers to see where you stand. Even seemingly minor miscalculations can sink your mortgage.
For the record, many of the lower-end calculators or advertisements you see on TV or elsewhere will typically display the lowest monthly payment possible, whether accurate or not.
Read more: How are mortgages calculated (lots of math)?