4 ms·

I don't believe this is really a factor. Paying down the principal faster saves you the 5% (or whatever your mortgage rate is) interest on the amount of your p

by dreeves 16y ago

I don't believe this is really a factor. Paying down the principal faster saves you the 5% (or whatever your mortgage rate is) interest on the amount of your pre-payment. It's tantamount to investing that money at a risk-free 5%. That might be the smartest thing to do with your savings but it doesn't change the calculus fundamentally. Buying a house with a suitcase full of cash or getting a zero-amortization (infinity-year, ie, interest-only) mortgage or anything in between is all roughly financially equivalent if you have alternative investments available. Actually the longer the mortgage term the bigger total tax deduction you get, so in that sense the more you pre-pay the costlier it is.

po 16y ago
I don't have a mortgage so I don't personally do this, but I can tell you it's a popular practice. > but it doesn't change the calculus fundamentally. It does change the calculation that this tool is showing. If you use the tool and assume you make 3% interest on savings, but then make periodic payments on your 6% interest loan, there is no way to model that with this tool. OK, so lets say this is a bad idea and you should instead not have any savings in that case, and make all of your savings into payments on your mortgage interest. You're saying we could model that by assuming you are making periodic risk-free 5% (or whatever) investment instead. > Actually the longer the mortgage term the bigger total tax deduction you get, so in that sense the more you pre-pay the costlier it is. I get what you're saying but a tax deduction can never completely offset the interest payment right? Also, it depends on the difference between capital gains tax and the credit you would get on your tax rate for the interest.
- dreeves 16y ago
  > OK, so lets say this is a bad idea and you should instead > not have any savings in that case, and make all of your > savings into payments on your mortgage interest. You're > saying we could model that by assuming you are making > periodic risk-free 5% (or whatever) investment instead. Exactly. > I get what you're saying but a tax deduction can never > completely offset the interest payment right? Agreed, but I just meant that the more mortgage interest you pay the more you save on taxes, not that the interest is totally offset or anything.

by dreeves 16y ago

po 16y ago

I don't have a mortgage so I don't personally do this, but I can tell you it's a popular practice. > but it doesn't change the calculus fundamentally. It does change the calculation that this tool is showing. If you use the tool and assume you make 3% interest on savings, but then make periodic payments on your 6% interest loan, there is no way to model that with this tool. OK, so lets say this is a bad idea and you should instead not have any savings in that case, and make all of your savings into payments on your mortgage interest. You're saying we could model that by assuming you are making periodic risk-free 5% (or whatever) investment instead. > Actually the longer the mortgage term the bigger total tax deduction you get, so in that sense the more you pre-pay the costlier it is. I get what you're saying but a tax deduction can never completely offset the interest payment right? Also, it depends on the difference between capital gains tax and the credit you would get on your tax rate for the interest.

dreeves 16y ago
> OK, so lets say this is a bad idea and you should instead > not have any savings in that case, and make all of your > savings into payments on your mortgage interest. You're > saying we could model that by assuming you are making > periodic risk-free 5% (or whatever) investment instead. Exactly. > I get what you're saying but a tax deduction can never > completely offset the interest payment right? Agreed, but I just meant that the more mortgage interest you pay the more you save on taxes, not that the interest is totally offset or anything.