Online Mortgage Calculators Have Huge Limitations

By on March 23, 2013

The world is no longer what it was 15 years ago. These days almost anything can be conveniently done online. In fact, if you have been searching around for mortgage information over the internet, the odds of running into an online mortgage calculator is probably 100%. Thousands upon thousands of these financial tools can be found with a quick search on Google. And nothing is more misleading than an affordability calculator. Affordability calculators are those that help you calculate how much of a loan quantum you will be able to obtain from a lender. Just try out an affordability calculator and then apply for a home loan with a bank to see if there is any mismatch. In a worst case scenario, you might have made a purchase decision based on information obtained from such a calculator and finding out later that no bank is willing to approve a loan remotely close to that amount.

Buying a property is a long term commitment and can very well be a million dollar decision for a lot of people. Don’t leave your decisions up to fancy calculators found online. A number of providers of these calculators just input your financial details into their software and present you with an immediate answer based on multiple assumptions. These consultants with “one size fits all” mindsets fail to recognize you as a person with unique features. All they do is place you into a category and shows you all information in that category.

Miscalculating your loan eligibility can derail your plans

Miscalculating your loan eligibility can derail your plans

Here are some of the quality information that is left out in using online calculators.

  • What are your financial goals?
  • How much are  you spending for household expenses?
  • How long you intend to own the property?
  • How much of your wealth do you intend to accumulate via properties?
  • What forms of financing suits you best for wealth goals?
  • What kind of property suits your goals best?
  • How much would you save on a larger down payment?
  • Does floating or fixed rate mortgages suit you better?

Also take note that the biggest assumption of these calculators is that interest rates remain the same through out the tenor of your mortgage loan. This means that a seemingly affordable loan quantum can become miserably unaffordable if interest rates spike. Calculators lack judgement to guide you. In a way they only encourage you to spend as much as possible. Would you expect a banker to encourage you not to take up a home loan with them?

Up to now, we have talked about how online calculators might indicate a loan size much larger than what you can actually get from a bank. The other end of the spectrum is that it might show you a much smaller size than what you can actually obtain. That is another headache by itself.

Imagine targeting your $1m dream home and finding out that you are unable to afford it via an online mortgage calculator. So you end up buying an inferior $800k home. Only after you make the purchase do you realise that the bank was willing to grant you your required loan quantum for the $1m home. Imagine the agony. Who is to blame if this happens? The consultants offering these calculators? No. You can only blame yourself.

What is the solution?

The only solution is to finding out how much exactly you can loan is to apply with a proper bank for an approval in principle loan. This is the only way to find out for sure how much you can borrow. Stay away from online calculators. You can make a property purchase with full confidence when there is a bank that is backing you up formally.



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