If you are looking to buy a new home, or trying to figure out if buying will be cheaper in the long run than renting, financial calculators can be great tools in the decision-making process. Be careful, though, of relying on them too heavily to determine what ownership is going to cost you, experts say.
“The key is understanding and accepting their limitations,” said Michael Schreiber, managing editor of MainStreet.com. “Calculators should be used as a general guide, but an automated tool, no matter how comprehensive, can’t replace a real person.”
For example, a mortgage broker actually will be able to tell you what interest rates you can qualify for, which can make a substantial difference in what a loan will cost you. He or she also can help you figure out ways to raise your credit score so you will qualify for lower interest rates.
Financial calculators cannot do that, nor do they always include basic expenses like property taxes for the neighborhood in which you are looking to buy.
Specificity is important,” Schreiber said. “A mortgage calculator that doesn’t factor in property taxes and home insurance will ultimately provide you with an incomplete estimate.”
Mortgage calculators often do not tell what you could earn on your money if you invested it rather than paying a mortgage.
“When it comes to buying a home, what may appear to be small differences in terms could mean substantial differences in wealth,” said Ilene Davis, developer of the It’s Not Just For Retirement Calculator at njfrcalculator.com. “What seems to be a standard pitch for mortgages is the focus on total interest paid, but what is seldom mentioned by lenders is the time value of money, the concept that a dollar today is worth more than a dollar in 20 years, even with modest inflation.”
That means buying will often protect you against the vagaries of inflation.
Even with inflation of only 2 percent per year, you would need more than $1,400 to purchase what $1,000 will buy today, Davis said. The ideal calculator will take into account the discount rate or the rate an investment is likely to earn, the length or term of the mortgage, upfront costs including points and the down payment, which will not be able to earn income once it’s paid.
So while it ultimately is better to seek out a lender and talk to him in person about what a mortgage will cost and for what rates and terms you can qualify, here are some calculators to help do some preliminary calculations:
nytimes.com/interactive/business/buy-rent-calculator.html: This New York Times calculator can help you determine whether it’s cheaper to rent or buy by allowing you to compare rental costs with mortgage costs.
bankingmyway.com/calculators/mortgages: A service of the Street network, these calculators can help you evaluate everything from the maximum mortgage for which you would qualify to the cost of renting versus buying.
bankrate.com/calculators/mortgages/mortgage-calculator.aspx: A very basic mortgage calculator, BankRate.com will analyze the cost of a mortgage based on figures you enter, including interest, taxes and insurance costs.
dinkytown.net: DinkyTown.net offers a host of mortgage calculators, similar to those from the Street, allowing you to figure everything from the cost of a Federal Housing Administration loan to a cost comparison of 15-year versus 30-year mortgages.
njfrcalculator.com: A comprehensive financial calculator, this online service isn’t free, but it has the ability to formulate the most complex transactions related to taking out a mortgage, including figuring out what a borrower could earn on his or her money versus investing it in the purchase of a home.
equityvista.com: This free tool allows you to monitor your current mortgage on an ongoing basis, looking at everything from what a refinance would save you at today’s rates to whether or not it makes sense to use home equity to pay off debts.
