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.

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.

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.

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.

@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!

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 :)

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.)

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.

great comment. adding this to the roadmap.

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).

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?

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.

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

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?

@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!

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...

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).

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.

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.

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.

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.

See also: http://michaelbluejay.com/house/ and http://michaelbluejay.com/house/rentvsbuy.html

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.

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

My preference has been http://www.nytimes.com/interactive/business/buy-rent-calcula...

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?

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=...

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).

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

> 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.

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.

@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.

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

Thanks!

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

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.

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.

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

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

"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.

This is one of the best out of the rest.