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More on Mortgage Comparisons – An Expanded Calculator
By JLP | June 12, 2006
I just finished up an expanded calculator for comparing mortgages. This calculator assumes that the monthly payment differences are invested in a savings account that grows at an expected rate of return that you enter. The calculator then shows you how much your net worth “could be” based on those numbers. It is important to note that this is all a factor of mortgage rates and the rate of return that you can get elsewhere. The higher the mortgage rate, the better off you are by paying off the mortgage as quickly as possible.
A shortcoming to this calculator is that it assumes straight-line appreciation, which we know is not the case in the real world. This calculator is only meant to give you something to consider when deciding on which mortgage to use. Also, it is important to note that in order for this strategy to work, you MUST invest the difference. If you don’t invest the difference, then you are MUCH better going with the shortest mortgage possible if your budget can handle the payment.
Topics: Calculators, Mortgages | 6 Comments »
June 12th, 2006 at 1:36 pm
Just looked at your expanded calculator….your networth calculation is off since it does not take into account how much you still owe on your house and deduct it from your networth
June 12th, 2006 at 8:58 pm
Dan,
The problem has been fixed. I was thinkng about the end result and not the in-between results. Thanks for the catch.
May 15th, 2007 at 9:06 am
How are taxes accounted for? Should the savings account returns/interest expense be pre or after tax?
May 15th, 2007 at 11:05 am
any way we could get this as an excel document? i’d sure like to play around with it a bit more.
thanks,
kyle
May 15th, 2007 at 4:13 pm
This is a neat calc! If you have it as the excel file, I would appreciate a copy too. I want to play with #’s other than 15/30/40/50 years, and also with pre-payment amt that is different from the diff compared to 15 year payments.
Thanks!
ispf
August 22nd, 2007 at 5:49 pm
I wish it were this simple. But there are several factors you may have missed with this calculation. One is the tax consequences which have a dynamic impact on real estate and other investments. The second point to think about for an example is you take the 15 year mortgage option and put all your money into paying down your mortgage. In year ten there is some kind of crisis a Flood, Tornado, Hurricaine, Fire, Medical problem, you lose your job or an economic depression. Would you rather have your money in a safe side fund or in the home you just lost or just can’t sell. Home equity is best invested outside of the home.