Prepayment vs. Investment -- A Scenario
This form allows you to compare what would happen if you took one of two
choices with some extra cash you have -- prepaying your mortgage each
month, or investing it instead. This tries to take into account your
tax situation and assumes you always itemize (even late into your
mortgage when your interest will be lower -- I am assuming you give to
charities, and pay state and local taxes too!!)
| Loan Balance | 0.00
| | Current Payment | 0.00
| | Additional Payment | 0.00
| | Loan Interest Rate | 0.00 %
| | Loan Interest Deductibilty |
| | Investment Return Rate | 0.00 %
| | Tax Bracket | 0.00 %
| | Investment Type | |
| PREPAYING | INVESTING | | Month | Loan Bal (P) | Int Paid (P) | Tax Ded (P) | Loan Bal (I) | Int Paid (I) | Tax Ded (I) | Inv Bal (I)
|
|---|
Summary| - | Prepay | Invest
|
|---|
| Total Interest ( 0.000 yrs) | 0.00 | 0.00
| | Loan Payback Time (Years) | 0.000 | 0.000
|
Investment - Loan Balance : $ 0.00
In your case it is wiser to prepay than to invest
Assumptions: This estimation assumes you will pay a fixed amount
every month to either your loan prepayment or to some type of after-tax
or tax deferred investment. If it is after-tax it will be more available
to you, but every 12 months you will be forced to pay tax on your annual
yield. This also assumes that you take the extra tax savings by NOT
prepaying (prepaying lowers your deductible interest payments)
and you put the tax savings into the investment as well.
This also assumes that the top income tax rate will stay the same for a
long time. This tax rate should also include your state income tax too
if applicable.
|
