Do you have a calculator on your website? Do you work with partners who have their own, or mortgage calculators in general?
The Consumer Finance Protection Bureau (CFPB), in a recent blog posting, warned consumers to beware of using mortgage calculators to help determine their costs when shopping for a mortgage.
Given the bureau’s ability to enforce against unfair, deceptive and abusive acts and practices (UDAAP), the posting reads as a cautionary tale.
“While a mortgage calculator can be a great tool to crunch some complicated numbers and get a ballpark estimate of your monthly payment, many calculators won’t give you a complete picture of all the costs,” the blog posting states. “That’s why you could be setting yourself up for a surprise if you only rely on a mortgage calculator without making your own adjustments. “
After a brief discussion on how a mortgage calculator works, the CFPB cited two problems with the calculators.
The first, it said, is that many calculators only determine the principal and interest payment.
“But, principal and interest are not the only costs you’ll pay each month,” the posting says in bold type. “If you’re using a mortgage calculator to decide how much you can afford to spend on a home, you may be significantly underestimating how much you’ll have to pay each month. That’s a surprise you don’t want.”
The CFPB suggests consumers do their own research on payments for homeowner’s insurance, property taxes and mortgage insurance, and add those to the calculator’s figures. It gives consumers tips on where to find approximate data for payments on those additional areas.
The second problem, according to the CFPB, is that the calculators are only as good as the information fed into them.
“Some calculators make some assumptions for you, while others let you control all of the inputs. The key factors that determine the monthly principal and interest payment are the loan amount, the length of the loan and the interest rate,” the posting said. “Choosing a realistic interest rate to use with a mortgage calculator is critical.
“The interest rates that lenders advertise on the Internet are not necessarily the rates you will be able to get,” the posting continues “Advertised rates usually assume that you have an excellent credit score and will make a downpayment of at least 20 percent.”
The posting suggests consumers use the CFPB’s tool to explore factors that affect interest rates.
It also includes closing costs into determining the cost of a mortgage, citing origination and lender charges, points, third-party closing costs (including title insurance), taxes and fees, and prepaid expenses and deposits.
The posting wraps up by telling consumers that calculators can be used early in the process to decide how much buyers want to spend on a home.
“Remember, these numbers are just a starting point,” the CFPB cautions. “As you move forward and gather more information, you can go back and refine those initial calculations.”
As buyers look at specific homes, the CFPB says mortgage calculators can help determine monthly payments, but only if consumers remember to add in estimates listed above.
Finally, the CFPB suggests using the bureau’s own mortgage calculator.
“Our calculator also tells you the total amount of interest you’ll pay in each scenario,” the CFPB states “There are many other mortgage calculators available online. Try searching for mortgage calculator.
“Don’t let your monthly mortgage payment be a mystery,” the CFPB continues. “Mortgage calculators are helpful tools to get an estimate as you shop, but make sure you’re considering all the additional costs of buying a home before you make a decision. “