If you're in the market for a new home, you may be considering taking out a loan to help finance the purchase. But when it comes to borrowing money, it's important to be as accurate as possible. That's where home loan borrowing calculators come in. These handy tools let you plug in your information and see how different loan terms can affect your monthly payment. How accurate are they, though? Can you trust the results they give you? Let’s take a closer look at how accurate home loan borrowing calculators are. And what factors may affect the accuracy of their estimates.

The benefits of borrowing calculators

Home loan borrowing calculators can provide home buyers a lot of benefits. First, they give you the opportunity to quickly weigh up your options. This will help with your initial search. Second, calculators can help you crunch the numbers and figure out which type of loan is best for you without the hassle of speaking directly with a lender or bank. Third, using a calculator can give you a ballpark idea of what your monthly repayments will be. This will confirm whether you can afford the home you're interested in.

How accurate are home loan borrowing calculators?

There’s no denying how handy these tools are for borrowers and home buyers. However, there are several reasons why you shouldn't rely completely on their calculations.

Simplified assumptions

Home loan calculators use simple assumptions in their calculations. But if these assumptions are wrong, it could mean that your results are off as well. For example, they may assume you will make repayments on time and in full every month. But this might not be possible which means you could incur additional charges.

No fees and charges

A home loan borrowing calculator will also only provide a rough estimate of the total cost of a loan. They don't consider additional fees and charges. However, these can add hundreds or even thousands of dollars to the total amount you'll need to repay over the loan term.

The length of the loan

The loan term is the length of time over which you'll be repaying your loan. It can have a significant impact on the total amount you'll repay. If you have a 30-year loan with an interest rate of 5%, your total repayment will be more than double if you had a 15-year loan with the same interest rate. This is because the longer the loan term, the more interest you'll accrue over time. Some lenders offer exclusive loan terms for first home buyers, or they might be offering discounted mortgage rates. These are almost never considered in the calculations. This can give borrowers a false sense of how much they'll need to repay each month.

No assessment rate

Home loan borrowing calculators don't always consider the assessment rate. This is the rate charged by lenders to assess your credit worthiness. It is an interest rate that factors in a bank’s standard variable rate (SVR). This figure varies depending on the lender. This can lead to underestimated repayments and put you at risk of defaulting on your loan.

Additional expenses

Calculators also don't consider your specific deductions. This could include a HECS/HELP debt that is currently being deducted from your gross salary. This means that the amount they recommend you borrow may not be the same as the amount you qualify for. As a first home buyer, you might not be aware of the deductions to include when using a home loan borrowing calculator.

Income

There are several things to consider when taking out a home loan, and your income is one of the most important. However, not all sources of income are equal in the eyes of lenders. If you are self-employed or on commission, your income may be more variable than someone with a regular salary. This makes it harder to get approved for a loan. However, this is generally not a factor that is included by home loan borrowing calculators

The takeaway - how accurate are home loan borrowing calculators?

So, what's the takeaway? While home loan calculators can be a useful tool, they don't provide the full picture. However, you don’t have to dismiss them all together! They can come in handy for your initial loan search. And we have created our own Home Loan Repayment Calculator for exactly that reason. But at the end of the day, you don't want to rely on home loan borrowing calculators to do all the heavy lifting for you. Use them to give you a start. But make sure you speak to an expert to get an accurate estimate of your potential repayments.

Speak to an expert

At Lending Loop, we believe in keeping things simple, straightforward and hassle-free. And that means you can focus on finding the right home while we take care of finding the right loan that works for you. No complicated calculations necessary. If you have any questions about mortgages or want to get started on your home buying journey, contact our team today. We would be happy to help!