With both mortgage calculators and pre-approval applications available online, some people might be wondering: what’s the difference between them? While they might sound the same on paper, a mortgage calculator and pre-approval actually serve two different functions. In this blog post, Mortgage Design Group Inc. breaks down all you need to know about the two.
What is a mortgage calculator?
A mortgage calculator is an online tool that helps you determine your mortgage payment. It can also provide you with a mortgage payment schedule. When using the calculator, it will ask for specific information, such as your mortgage amount, interest rate, amortization period, and more.
Once the calculator has put all the information together, it will give you a rough idea of your total number of payments, amount and how much you’re paying for. In most cases, such as in this calculator from the Government of Canada, it will show you the total principal amount as well as the amount of interest you’re paying.
What is a pre-approval?
A pre-approval is a statement from a lender saying that you are qualified to borrow up to a certain amount. This is usually based on your current income and credit history. It will specify a term, interest rate, and mortgage amount that you qualify for and is valid for 120 days. This can be especially helpful as it protects you from any interest rate increases during this time.
Most mortgage brokerages and banks will help you get pre-approved at no cost. Most applications can be filled out online but be wary of those applications that claim to give you results within minutes. At Mortgage Design Group Inc., our pre-approvals are properly checked by an experienced broker so that you know you are getting the most accurate results. Our easy pre-approval application is available on our website!
What are the pros of a mortgage calculator?
A mortgage calculator is extremely accessible, with many to choose from online. They can also give you results very quickly. A mortgage calculator takes all the complicated math out of getting a mortgage to give you clear and detailed answers in graphs and tables. Many calculators will also summarize all the results into something that is easily digestible.
What are the cons of a mortgage calculator?
Mortgage calculators are a great tool, but the major downside is that they might not be entirely precise. They are only as accurate as the information you provide. If you are unfamiliar with mortgages, it can be hard to determine what the best options are or what you qualify for.
Another downside to mortgage calculators is that it does not give you the full picture. One prime example is the need for mortgage default insurance. If your down payment is less than 20% of the home price, mortgage default insurance is required. Its cost can range between 0.6% and 4.5% of the amount borrowed.
Other costs to take into account include property taxes, private mortgage insurance, homeowners insurance etc. A mortgage calculator would not warn you of these additional costs.
All that being said, a mortgage calculator is an excellent tool to give you a rough idea so you can start to plan your financial goals. It’s especially helpful if you have access to a trusted mortgage broker, such as the experienced team at Mortgage Design Group Inc. You can consult with your mortgage broker beforehand, or even discuss your results with your broker to make sure that the results are accurate and that you know about all the costs involved!
What are the pros of a pre-approval?
With a mortgage pre-approval, you’ll understand the exact amount that you qualify for. This will help you set and understand your budget so you can find a home that you will be able to finance. Because you are working closely with a human broker, they can paint you a more realistic picture of what your monthly costs will be.
In the eyes of a seller, a pre-approval also helps make you look like a serious buyer. They know that there is less risk of the deal falling through because you have proof that you will have the appropriate financing. If a seller feels like the sale is a sure thing, they may even be more willing to negotiate the terms of the sale.
A pre-approval can also be taken a step further by getting it underwritten. That means that a mortgage company has already vetted your financials and has agreed to give you a mortgage for a specific amount. At Mortgage Design Group Inc., all of our pre-approvals are fully underwritten so you can search for your dream home in confidence.
What are the cons of a pre-approval?
The downside to pre-approvals is that they can take some time to complete. The process is fairly detailed, so you will need to provide documentation such as bank and investment statements, proof of income, and information about your debt.
Depending on how complicated your finances are, a pre-approval can take anywhere between a few days to a few months. At Mortgage Design Group Inc., we process our pre-approval applications and get in touch within 1–3 days.
At Mortgage Design Group Inc., we want to show everyone that the path to home ownership can be easy. With the same world-class service experience available online, you can easily get advice, answers, and thoroughly underwritten and accurate pre-approvals from the comfort of your own home. Even better? Our service is free and does not commit you to a single lender!
Prepare for your new purchase in confidence with a mortgage pre-approval. Fill out our quick and simple pre-approval application or get in touch with us today! We’re excited to help you make your dream home a reality.