
SmartAsset, the Financial Calculator Killer - mcarvin
http://blog.smartasset.com/news/2012/07/smartasset-the-financial-calculator-killer/#.UA7_mmGXSuI
======
jlongster
I just bought a house. We closed last Thursday and are moving in on Saturday.

I can tell you it's so true that it's really hard to figure out what's going
on. Everybody will tell you different things, different banks and even friends
and family.

I couldn't stand it, so I sat down and researched the mortgage calculator
formula. It's actually pretty easy:

<http://www.hughchou.org/calc/formula.html>

I implemented this in javascript and was able to see my monthly payments and
project my loan amounts over the years. This gave me a great way to fiddle
with lots of parameters and instantly see differences. I was able to graph the
results and see exactly where I broke even on different investments, etc, and
completely decide, without persuasion, what kind of loan I wanted.

Most loan calculators suck. They don't really let you play around with the
parameters, or they aren't clear on what they are including.

I'm happy to see this company because I'm all for opening up this kind of
"fiddling" to people who can't program. I feel bad for people who are confused
but don't have the skills to sit down and really figure it out. I wish you
luck and I hope you better people lives with this.

EDIT: I played around with your tool a little bit. Here's where I think you
guys should go: financial advice. Don't force people to tell you what down
payment they need. If they don't enter one, suggest a few different amounts
and show the difference it makes. If they don't specify a 15 or 30 year loan,
show them the differences (pros and cons) and let them decide. In some cases,
_persuade people to make good financial decisions_. You should rarely get a
loan without any down payment. Tell people that.

~~~
mcarvin
this is an amazing validation of the pain point. sounds like you and I had
similar experiences. we want to get to the point where people do not need to
do this themselves.

~~~
jlongster
In some ways, I'd recommend restructuring the app a little bit and start low-
level and allow the user to do his own research and build up his info.

For example, let the user put it the price of a house. That's it. With 0% down
payment. Show them the graphs and the monthly payment (without
taxes/insurance). In 1 second, they immediately have something in front of
them.

Then, let them enter in a down payment, as they are doing so in real-time
update the graphs/payments.

Then they choose 15 or 30 year, and keep adjusting parameters. They started
simple but are slowly building up to see what makes a difference and aligning
it with what they can afford.

At least, that's how I approached it. I want to see graphs/payment before I
even have to tell you my savings.

------
chernevik
This is a tool for analyzing the _financing_ of the purchase. But half of the
U.S. is underwater because they got the _pricing_ wrong.

Let's pass on housing bubbles for a second. Brokerage fees are the priceyist
piece of the average housing purchase, something like 6% or so. But it seems
that here these get rolled into the asset cost, the fees mentioned here are
the financing fees.

Now we can say, "Yeah, that is another wrinkle and we have to fix that." But
it's wrinkles all the way down. These decisions are complex because there are
so many options.

Which goes to the key sentence in the post: "One place, where you can answer
all of your questions, address all of your concerns and remove the anxiety
created by unfamiliar jargon and complex financial consequences." This as
plausible as one place to answer all your web development questions without
all that technical jargon.

Mortgage finance is complicated because there are lots of options. The jargon
represents those concepts. Grok the jargon, grok the concept, you're starting
to get it. Want to understand without all that nasty jargon? Look, 99% of
technical and financial writing could be more clear, and definitions and
motivation of the jargon are generally lousy. But the jargon is there for a
reason. I find claims to clarify jargon a lot more credible than claims to
obviate it.

If the idea is to help some one get to a smart decision about a fixed or
floating loan, without them actually understanding the difference and the
implications and the various risks, I don't see it. You might be getting them
into a better spot. But if they don't understand what they've done, they
haven't made a financial decision, they've made a management decision about
who they are going to trust. But that is essentially the same model as that of
every calculator provider.

~~~
philipcamilleri
@chernevik -- thanks for the comments. W.r.t. the 6% "cost of sale" that is
actually baked into the numbers. Granted it is fixed at 6% and cannot be
changed (something we will allow shortly).

Please also understand that we've only just taken the first steps on this
product. There are several more questions to be answered, and more interactive
pages explaining the jargon, allowing users to visualize the variables that go
into various (complex) decisions.

We also know that what we've embarked on is not something simple: answering
complex financial questions, and personalizing them to an individual's needs
is no trivial task.

However, we think we can build this out. What we released today is just the
tip of the iceberg... plenty more to come shortly.

Hope this helps. And as always, if you have any comments or suggestions feel
free to get in touch with us (info@smartasset.com) any time.

Thanks!

~~~
Loic
Very nice and easy to use. One nice thing would be to be able to have:

\- the ability to change some of the assumptions, for example, 2% return on
the savings is not what I have in my records for the past 10 years.

\- a small pie/stacked graph with where the money is going each month. 25% for
mortgage, 25% for expenses, xx% for taxes, etc. This would provide a "fast
check" for visual people.

I would love to have such tool for the German market :)

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ChuckMcM
This is certainly an area that needs clarity badly. Banks are clearly not
disinterested parties when it comes to Financial Calculators (just like your
Financial Advisor's Retirement Calculator is biased toward products they can
sell you)

Once you nail this one, you should do the same for owning 'working' assets.
Which is to say what sort of rate of return could one get on their money if
they created an LLC, bought a property, and rented it out. All the same things
go into the equation but the variables are subtly different (what mortgages
can an LLC get that an individual can't? How about the other way round? Etc.)

~~~
pyoung
That would be pretty cool. However, that seems like it would be getting into
the commercial lending territory which would make it pretty difficult to pull
off.

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tptacek
So: I used your thingy as soon as I saw the TC announcement, and while I
believe you when you say that there's substantial modeling happening behind
the scenes, I didn't perceive any of that. My end-user experience with your
offering was of a very, very usable... financial calculator.

One thing that might have sold me on what you're doing behind-the-scenes: if
there was a "dumb calculator" result you could have compared your numbers to
in the results screen.

(Apologies if I missed you doing exactly that).

~~~
mcarvin
thanks for the feedback. we've been trying really hard to simplify the
application as much as possible. however it looks like there is an 'advanced'
group of users that wants a lot more detail (which we have a-plenty). we have
been thinking about letting people play with the raw models > is this
something you would be interested in?

~~~
tptacek
I want the opposite of punching more data into your tool; I'm just suggesting
that if you're smarter than financial calculators, you show the user a naive
calculator's predicted values alongside your own.

~~~
mcarvin
thanks, you're not the first to raise that point. we'll give that some further
thought.

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brianmckenzie
I tried this out earlier today, and it's great but one thing confused me a
little - your system seems to choose a home price for me based on income and
savings. In the real estate market where I live this results in twice the
house I would want/need. It also screws up the tax and rent/own calculations,
I would think.

Is there some way I can set the max home price?

~~~
philipcamilleri
@brianmckenzie -- you can change the mortgage and/or downpayment on the home-
affordability page (or any other page, clicking the "Edit" button in the Home
Value box on the left sidebar). Feel free to ping us on Olark chat (on the
site) if you have any issues.

Also, please do let us know why/where you think the tax and rent/own
calculations are screwed up. thanks!

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toddmorey
Curious to know your revenue model as you advance. Are you planning on
'referral fees' for presented loan offers? And would that approach threaten
your appearance as source of neutral information?

I recently bought a house and used this[1] mortgage calculator, which was the
best one I found. I liked how you can pivot from calculating on monthly
income, purchase price, or a total monthly payment. An easy way to play with
the numbers. Of course, since it's a simple calculator, it does require more
manual input. I will say, though, it might be nice to have a manual mode with
places you can input all those numbers a broker will throw at you.

[1] [http://www.mortgageloan.com/calculator/mortgage-
qualifying-c...](http://www.mortgageloan.com/calculator/mortgage-qualifying-
calculator)

~~~
mcarvin
Thanks for attaching the link. We do generate referral fee from leads (we
receive the same fee regardless of the lender so we maintain financial
neutrality) but we're much more concerned with getting the user experience
right (ie the second part of your note).

~~~
toddmorey
You guys are well on your way to getting the experience down and I certainly
wish you existed when I was working through the purchase of my home. Excited
to watch the product develop.

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wolffnc3
A feature I'd love to see is should I refinance or not.

I've currently got a convoluted system of spreadsheets which I have to update
every time I want to recheck against current rates. I'd basically like it to
tell me in which scenarios it would make sense to refinance. I input things
like amount of principle still outstanding, my current rate and term, how far
I am into that loan, when I plan on selling, what the refi rate/term options
are. The outputs I get are total cost (in fees and interest) by the
prospective sale date, and total equity by the prospective sale date.

It is not necessarily in a lenders interest to give borrowers this
information, since borrowers are trying to optimize based on paying the least
amount possible.

~~~
mcarvin
we're building out our refi functionality now. would be great to have you as a
test user? we're going to have analysis and data not available anywhere else.
info at smartasset dot com.

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rhizome
A bit of a quibble, but I don't like the "Done" button in the data-collection
sidebar. I think "Submit," "Update," or "Save" would be better, but I can see
where people don't like those words either. They'd seem to be a bit more on-
point, though.

------
alok-g
See also: <http://michaelbluejay.com/house/> and
<http://michaelbluejay.com/house/rentvsbuy.html>

------
samspot
I put my information in, and the max home I can afford is about 1/5th the
price of my current mortgage. I know that my house is more than I can afford,
but that is a pretty large discrepancy.

~~~
mcarvin
Hit us up on olark and we can go over your numbers.

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Echo117
My preference has been [http://www.nytimes.com/interactive/business/buy-rent-
calcula...](http://www.nytimes.com/interactive/business/buy-rent-
calculator.html)

There are a lot more options that I can take into account using the NYT
version (ownership costs, HOA fees, specific mortgage rate, length of
mortgage, rate of return of other investments, etc). How is this calculator
better? Just because it’s simpler?

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krishna2
I wrote a very simple/basic calculator when I was shopping around for a home.
FWIW, here it is:
[http://krishna2.com/test/fastloancalc.fcgi?term=30&rate=...](http://krishna2.com/test/fastloancalc.fcgi?term=30&rate=4.5&amt=400000&yahoo_submit=Calculate&prop=&hoa=&down=&saved=&rfr=&taxb=&rent=)

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rogerbinns
Scott Adams coined the term confusopoly to the business practise of making
things so complex it is hard to work out what is really going on:
<http://en.wiktionary.org/wiki/confusopoly>

This is a classic example along with cell phone carriers and retailers (try to
work out special offers).

~~~
mcarvin
thanks for that, confusopoly has a nice ring to it, and certainly fits.

------
jpdoctor
> rely on the user for inputs most will not know (do you know your marginal
> tax rate?)

Anyone who does not know their marginal tax rate has no business borrowing
$100K's to buy a house.

The fact that such lack of financial knowledge is socially acceptable is a
large contributing factor to the housing bubble; Buyers did not understand
elementary finance.

------
varikin
This interests me greatly cause I am trying to sell and then buy a house. The
problem I see is that I can't tell your app that I don't want a down payment.
I qualify for the VA loan which requires no down payment.

~~~
philipcamilleri
@varikin -- right now we don't source VA loans, however that is certainly on
our near-term roadmap.

Also, the current product is limited to "first time home-buyers". Re-
financing, buying a second home, and more are all coming very shortly.

~~~
varikin
Cool. I understand there is a lot of account for. Other than that gripe, this
looks very cool.

~~~
philipcamilleri
Thanks!

------
mammalfriend
FYI, here is the best rent v buy calculator I've seen thus far:
<http://michaelbluejay.com/house/rentvsbuy.html>

------
hoodwink
tl;dr This is a black box financial model driven by naive assumptions. Anyone
can teach themselves how to recreate these calculations in Excel. The real
value comes from helping people make better assumptions to drive the model
instead of performing the calcs. Otherwise, it's just "garbage in, garbage
out."

These calculations are a pretty black and white implementation of finance
concepts taught in an introductory course. The most complicated math involves
compounded growth and amortization. Granted, the data entry and presentation
are well-laid out, but I could make a similarly easy to use Excel spreadsheet
in 30 minutes with the ability to control all the model's drivers.

So I agree with others who have pointed out that you have made a very usable,
albeit overly simple, financial calculator, but that's a fairly low barrier to
entry product given the ease of the math and concepts.

As a real estate finance guy, I get asked for advice on home-buying all the
time. The calculations are easy. The real value in my advice, or any financial
advice for that matter, is help thinking through the assumptions that are used
to power a financial model, not actually doing the math itself.

The drivers of your model are: 1) assumed comparable rent 2) home value
appreciation 3) rental appreciation 4) financing (size, rate, amortization,
and term) 5) annual expenses (I assume you inflate these at 2% too, but it's
not listed) 6) and cost of capital (what you call "return on savings")

Right now, a majority of those variables are treated as an afterthought when
they should be the main event. Therefore, I find the results of this
calculator to be somewhat dubious. Said differently, I don't think this is
going to help laypeople make better, more informed investment decisions
because all you've got is a good-looking "garbage in, garbage out" financial
model.

My suggestion is to guide people to make more informed assumptions that feed
into your mechanical valuation tool. That would create real value. For
example, challenge them to consider the determinants of appreciation. Will
demand for the region in question outpace supply over the next 10 years? If
so, appreciation will probably exceed inflation. Ask questions like these and
based on the responses, convert them to quantitative inputs. [Admittedly, my
question was probably too technical.]

Separately, your decision metric lacks objectivity. You present the
"breakeven" point: the number of years that it would take for owning a home to
be better than renting in gross dollars. Why not just ask upfront, "How many
years do you expect to live in the same home?" and then give a definitive
answer (e.g., "you should rent"). Even better, you could ask a number of
questions to determine expected hold period. Age. "How long have you and your
spouse lived in the region?" "How long have you and your spouse had the same
job?" "Do you have family in the region?" "Is job mobility important to you?"
Then convert these to a range of expected hold periods.

As you know, home buying is different from a typical investment in that it is
a consumption good as much as it is a financial vehicle. There's plenty of
emotion to contradict logic, if not more. If I find a house I _have_ to have,
I'll make this model give me the conclusion I want it to give. That's what I
mean by lacking objectivity. Worst case, I'll convince myself I'll stay in the
region for 5, 12, 17 years, whatever your mechanical tool tells me.

My heuristic right now to friends and family: if you don't need mobility (job
or otherwise), buy and borrow as much long-term debt as possible at these
incredibly low rates. If inflation and interest rates spike, you'll make out
really well. If inflation and interest rates stay where they are, you won't be
much worse off. If you need job mobility, rent.

~~~
lobby7nerd
> If inflation and interest rates spike, you'll make out really well.

Will you explain this further?

As I see it - if interest rates spike (and incomes stay the some), buyers will
be able to borrow _less_ , not more money at constant monthly payments. So
housing values should go down? What am I missing?

~~~
squidi
OP referred to "long-term debt", so I think the point is that if interest
rates spike then those with fixed interest rate loans are not affected and
therefore able to continue with cheap long-term debt.

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irunbackwards
This definitely solves a major paint point for a lot of people. Cheers and
good luck. Great post!

------
kablamo
This is very cool. How do you plan to make money?

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filip01
"Just so you know we are not cherry picking this is the highest rank Google
return for home affordability."

This is by definition cherry picking. The highest rank Google return doesn't
say very much about the quality of the tool. It would be better (at least more
honest) to simply show the best tools out there and compare your solution to
theirs.

~~~
michaelcalleia
This is one of the best out of the rest.

~~~
Ralith
You know this how?

