Another item for you to look into...because quite honestly, I believe this has a much larger impact on the final price we pay at the grocery store than the price of corn or wheat or any other single raw ingredient.
Every single item in your home has been hauled by a truck at some point in it's life. Most items are hauled by truck many times in it's trek from raw ingredient to our shopping cart.
Those trucks on average use one gallon of fuel for every 4-6 miles they drive.
As fuel prices rise, those shipping costs are passed directly on to us : the consumer. Right now trucking companies are paying huge fuel surcharges to owner operators just to keep those trucks on the road - a company I just looked at pays an additional fuel surcharge of 43 cents for every mile - that's over and above the regular shipping fee - for a 2000 mile trip that adds up to an additional 860 dollars for that single load.
I am so disinterested in my job, staying for the money and city my employer is situated in. I hate my job. the work itself is not difficult or even that boring......but ooooh good lord are the people. Because i am in the field of science, these stupid people are always playing the "i am so right, you are sooo wrong game". I swear they get high from being write and asuming that they know more or know best. That their ideas are the greatest and when you suggest something they shoot you down like a terrorist plane!
I have come to ignore the people at work, make my tea have my smoke outside and be my own idividual.
Macros has the best ideas
HELOC method with $500 monthly:
Interest: $174,847 <- how much interest you pay by time loan is paid.
Term: 16 yrs 6 mos <- time it takes to pay off loan.
That gives you an interest savings of $172,668 ($347,515 - $174,847).
If you choose to pay the $500 extra towards your mortgage for 13 yrs 6 mos and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 17 yrs at an 8% annualized rate of return, you will get $839,074 ($666,406 + $172,668 [interest savings]).
To continue with the above example, but this time, looking at the HELOC method (based on my HELOC spreadsheet implementation):
HELOC method with $500 monthly:
Interest: $132,683 <- how much interest you pay by time loan is paid.
Term: 13 yrs <- time it takes to pay off loan.
That gives you an interest savings of $214,832 ($347,515 - $132,683).
If you choose to pay the $500 extra towards your mortgage for 13 yrs and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 17 yrs at an 8% annualized rate of return, you will get $1,220,268 ($1,005,436 + $214,832 [interest savings]).
Looks like in Post 76 I made another error...the time it took to pay off the mortgage by extra payment method is incorrect. Lets hope I get it right this time around.
Extra-pay $500 monthly:
Interest: $187,220
Term: 17 yrs and 8 mos
That gives you an interest savings of $160,295 ($347,515 - $187,220).
If you choose to carry your mortgage for 30 yrs and invest your $500 extra per month ($6000/yr) at an 8% annualized rate of return, you will get $734,075 at the end of the 30 yr period.
If you choose to pay the $500 extra towards your mortgage for 17 yrs and 8 months, and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 12 yrs and 4 months at an 8% annualized rate of return, you will get $749,754 ($589,459 + $160,295 [interest savings]).
So it appears the extra-pay plan is more advantageous at this point, so no need to look at tax issues.
But of course, each scenario is different, so it's best you run an analysis for your individual case.
SC, I agree with you that it will be harder for some restaurants than others. That is why I suggested a binder which could be easily and quickly updated for a new recipe by adding a new sheet of paper rather than a full-color brochure or wall poster. Under 5 minutes when they add or update a recipe and they are done. I don't know about you, but at least in my area every restaurant I've been in has a standard menu offering that rarely if ever changes, then they rotate some seasonal specials in and out. 90% of their info would always be accurate, it would just be those specials that need updating.
As for different cooks preparing food differently, I understand what you're saying. My point is it would still be close enough and far better than nothing. Sure you may get an extra ounce of mashed potatoes one visit and get shorted an ounce the next, but it is still going to be fairly close. If one chef is consistently over-portioning a meal, they won't last long. The restaurant management will see a drop in the profit margin of that meal or even across the board when that cook is on-shift.
And yes, eating frugal does mean eating at home more and eating out less. Even still some of us do count calories every day, and making sure we eat 900 calories instead of 1200 for the meal can make a big difference in a daily nutrition plan. It could also benefit the restaurant... If they list the nutrition information on my main course, I may decide I can afford some extra calories and buy desert, where normally I would have over-estimated the meal to be safe and wouldn't have had the room in the calorie-budget.
Regardless, I do agree with you that it is easier for McDonalds to provide the information than it is for Becky's Diner down the road. I merely think it is beneficial to everyone, including the restaurant, to provide the information even if it is a little inconvenience to them.
Right--wheat, like nonfat dry milk, is a globalized commodity, so a weaker dollar translates directly to higher US prices.
It's never quite that simple in practice, especially for agricultural commodities, because they are not only subject to world-wide supply and demand considerations, but also to price supports, export subsidies, and other government manipulations.
Less globalized products, such as bread, are affected much less (in both directions) by dollar strength or weakness.
One thing that's going to be very interesting over the next year or two is to see how the inflation numbers start to move, now that the downward pressure that globalization has placed on the costs of consumer goods has about played out.
It's definitely cultural. A lot of American employers have misplaced priorities. They'd rather you dazzle them with dishonest answers than be forthright and qualified. It's sad.
I installed a Reverse Osmosis (RO) unit a couple of years ago, and hve just loved it!
The RO I installed in my current home (approx $180) is a 36 gallon/day unit, and provides all of the clean, fresh, pure water we can use! It only takes simple maintenance, i.e. flush the RO membrane monthly and change the filters yearly to keep it working properly.
We gave up the satelite TV and went with the rabbit ears, but we havn't even turned our TV on in a month!
I made an error in the earlier post. Here it is again:
Assume you have a $300,000 mortgage @ 6% for 30-yr fix. That means you are paying $1798.65/month. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 18 yrs and 4 months.
That gives you an interest savings of $160,295 ($347,515 - $187,220).
If you choose to carry your mortgage for 30yr and invest your $500 extra per month ($6000/yr) at an 8% annualized rate of return, you will get $734,075 at the end of the 30 yr period.
If you choose to pay the $500 extra towards your mortgage for 18 yrs and 4 months, and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 11 yrs and 8 months at an 8% annualized rate of return, you will get $702,118 ($541,823 + $160,295 [interest savings]).
So you have $734,075 (pre-tax) vs. $541,823 (pre-tax) + $160,295 (tax-free).
Now lets consider taxation drawbacks/benefits. I'm not a financial person so someone please help out and correct any misinformation / misunderstanding on my part. Assume for every dollar of interest you pay, you get back 30 cents.
For a 30yr plan, we would pay an extra $160,295 in interest. That means we get back $48,089 in tax savings. With our investment gain of $734,075, our tax would be $110,111 @ 15% capital gains tax rate. Therefore, our net gain after 30 yrs is: $672,052.
For the pre-pay plan, we get an interest savings of $160,295. With our investment gain of $541,823, our tax would be $81,273 @ 15%. Therefore, our net gain after 30 yrs is: $620,845.
So it appears the 30yr plan wins over the pre-pay plan by $51,208.
Spreadsheet -- hey I'd like to see it too! I found HELOC calculations tedious even though I usually like making spreadsheets. If you want to send a spreadsheet to Wise Bread, you can use the contact form.
My findings were that you need to consider the compounded cost of the loan over time and not just the initial cost (which the illustrations tend to emphasize); and also consider whether when the bank credits your account for deposits/loan payments, which banks tend to delay for as long as legally possible. This delay can wreak havoc in the value of the HELOC system.
As far as investing vs. payoff, the smaller the spread (8% in investments vs. 6% in loan rate), the more attractive the payoff; the higher the growth rate, the less attractive the payoff.
You're missing the real point. The main reason the price of wheat is up, as well as oil and any other commodity, is the collapse of the dollar. This will continue as the U.S. can not afford its budget and the world is getting wise to that fact. Inflation? Do not believe government figures, those are heavily manipulated. Believe your gut when you visit the grocery store, pay your insurance or pump gas.
And it will get much worse. For you history buffs, think 'Weimar Republic'. It may not (I hope not) be as bad as that in terms of amplitude, but it will be very bad.
Borrowing $300,000 @ 6% for 30 years and paying $500/month extra does cost $187,220 rounded, in interest, but it takes 17 years and 8 months to pay off the mortgage. The mortgage is payed off 12 years and 4 months earlier, not the other way around.
Wheat and corn don't really grow in the same places, whereas soybeans and corn to, so I think the greater point is valid. Where farmers can shift to corn, they have, meaning less of whatever the alternative crop would have been--and that choice affects the choices other farms make with regard to whatever alternatives they have. Since (unlike corn) many of those other grains are partial substitues for wheat, less of them still puts price pressure on wheat.
There's a lot of press out there about acres shifted to corn, which I suppose refer to a lot of specific situations and changes versus what was possible. I link to one in the post, and the topic is addressed in the link above.
There are also a lot of particular situations. For example, there was a drop in spring wheat, which is the one that would be most affected by rising corn prices, as that's the acreage where the decision could be made later.
Great point Peter, cell phones are little more than electronic leashes, hardly a luxury if you think about it. I had for nearly 4 years only a cell phone and no land line at all, it wasn't really a conscious choice and when my life settled down a little I dumped the cell in exchange land line and DSL.
I also don't watch television or drive a car. Forget about saving money, the freedom is worth it-- the extra time to enjoy life is worth it. If there's any irony it's that my tv watching auto driving friends also complain about the time and money they spend at the gym (which I don't have to, which is not because I'm blessed with a great metabolism; it's because I'm constantly burning calories by walking or bicycling to complete my daily errands.)
I really don't feel like I've given anything up, or been inconvenienced in any way, and the health/cost/time/effort/stress benefits far outweigh whatever I might be missing.
To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.
Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.
That gives you a savings of $347,515 - $187,220 = $160,295.
That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.
To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.
Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.
That gives you a savings of $347,515 - $187,220 = $160,295.
That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.
To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.
Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.
That gives you a savings of $347,515 - $187,220 = $160,295.
That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.
For my scenario, I'm saving much, much more than a mere couple of thousands. I did many test run with the software since I've bought it and I'm seeing savings of over $45K in the first year alone as compared to simply taking the extra money and paying it towards principal each month!!!
But please send me your spreadsheet anyway. I'd like to know if your spreadsheet was set up similar to mine (I also did the HELOC method on the spreadsheet - and it showed me more than a couple of thousands in savings).
Another item for you to look into...because quite honestly, I believe this has a much larger impact on the final price we pay at the grocery store than the price of corn or wheat or any other single raw ingredient.
Every single item in your home has been hauled by a truck at some point in it's life. Most items are hauled by truck many times in it's trek from raw ingredient to our shopping cart.
Those trucks on average use one gallon of fuel for every 4-6 miles they drive.
As fuel prices rise, those shipping costs are passed directly on to us : the consumer. Right now trucking companies are paying huge fuel surcharges to owner operators just to keep those trucks on the road - a company I just looked at pays an additional fuel surcharge of 43 cents for every mile - that's over and above the regular shipping fee - for a 2000 mile trip that adds up to an additional 860 dollars for that single load.
I am so disinterested in my job, staying for the money and city my employer is situated in. I hate my job. the work itself is not difficult or even that boring......but ooooh good lord are the people. Because i am in the field of science, these stupid people are always playing the "i am so right, you are sooo wrong game". I swear they get high from being write and asuming that they know more or know best. That their ideas are the greatest and when you suggest something they shoot you down like a terrorist plane!
I have come to ignore the people at work, make my tea have my smoke outside and be my own idividual.
Macros has the best ideas
DAMMIT I JUST LOST A FUCKING DOLLAR THIS DOESNT WORK
HELOC method with $500 monthly:
Interest: $174,847 <- how much interest you pay by time loan is paid.
Term: 16 yrs 6 mos <- time it takes to pay off loan.
That gives you an interest savings of $172,668 ($347,515 - $174,847).
If you choose to pay the $500 extra towards your mortgage for 13 yrs 6 mos and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 17 yrs at an 8% annualized rate of return, you will get $839,074 ($666,406 + $172,668 [interest savings]).
I mean please disregard post 78.
Please disregard post 76.
To continue with the above example, but this time, looking at the HELOC method (based on my HELOC spreadsheet implementation):
HELOC method with $500 monthly:
Interest: $132,683 <- how much interest you pay by time loan is paid.
Term: 13 yrs <- time it takes to pay off loan.
That gives you an interest savings of $214,832 ($347,515 - $132,683).
If you choose to pay the $500 extra towards your mortgage for 13 yrs and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 17 yrs at an 8% annualized rate of return, you will get $1,220,268 ($1,005,436 + $214,832 [interest savings]).
Looks like in Post 76 I made another error...the time it took to pay off the mortgage by extra payment method is incorrect. Lets hope I get it right this time around.
Mortgage: $300,000
Rate: 6%
Term: 30 yrs
P&I: $1798.65
Interest: $347,515
Extra-pay $500 monthly:
Interest: $187,220
Term: 17 yrs and 8 mos
That gives you an interest savings of $160,295 ($347,515 - $187,220).
If you choose to carry your mortgage for 30 yrs and invest your $500 extra per month ($6000/yr) at an 8% annualized rate of return, you will get $734,075 at the end of the 30 yr period.
If you choose to pay the $500 extra towards your mortgage for 17 yrs and 8 months, and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 12 yrs and 4 months at an 8% annualized rate of return, you will get $749,754 ($589,459 + $160,295 [interest savings]).
So it appears the extra-pay plan is more advantageous at this point, so no need to look at tax issues.
But of course, each scenario is different, so it's best you run an analysis for your individual case.
I used the calculator below to calculate the capital gains:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
SC, I agree with you that it will be harder for some restaurants than others. That is why I suggested a binder which could be easily and quickly updated for a new recipe by adding a new sheet of paper rather than a full-color brochure or wall poster. Under 5 minutes when they add or update a recipe and they are done. I don't know about you, but at least in my area every restaurant I've been in has a standard menu offering that rarely if ever changes, then they rotate some seasonal specials in and out. 90% of their info would always be accurate, it would just be those specials that need updating.
As for different cooks preparing food differently, I understand what you're saying. My point is it would still be close enough and far better than nothing. Sure you may get an extra ounce of mashed potatoes one visit and get shorted an ounce the next, but it is still going to be fairly close. If one chef is consistently over-portioning a meal, they won't last long. The restaurant management will see a drop in the profit margin of that meal or even across the board when that cook is on-shift.
And yes, eating frugal does mean eating at home more and eating out less. Even still some of us do count calories every day, and making sure we eat 900 calories instead of 1200 for the meal can make a big difference in a daily nutrition plan. It could also benefit the restaurant... If they list the nutrition information on my main course, I may decide I can afford some extra calories and buy desert, where normally I would have over-estimated the meal to be safe and wouldn't have had the room in the calorie-budget.
Regardless, I do agree with you that it is easier for McDonalds to provide the information than it is for Becky's Diner down the road. I merely think it is beneficial to everyone, including the restaurant, to provide the information even if it is a little inconvenience to them.
Right--wheat, like nonfat dry milk, is a globalized commodity, so a weaker dollar translates directly to higher US prices.
It's never quite that simple in practice, especially for agricultural commodities, because they are not only subject to world-wide supply and demand considerations, but also to price supports, export subsidies, and other government manipulations.
Less globalized products, such as bread, are affected much less (in both directions) by dollar strength or weakness.
One thing that's going to be very interesting over the next year or two is to see how the inflation numbers start to move, now that the downward pressure that globalization has placed on the costs of consumer goods has about played out.
It's definitely cultural. A lot of American employers have misplaced priorities. They'd rather you dazzle them with dishonest answers than be forthright and qualified. It's sad.
All,
I installed a Reverse Osmosis (RO) unit a couple of years ago, and hve just loved it!
The RO I installed in my current home (approx $180) is a 36 gallon/day unit, and provides all of the clean, fresh, pure water we can use! It only takes simple maintenance, i.e. flush the RO membrane monthly and change the filters yearly to keep it working properly.
We gave up the satelite TV and went with the rabbit ears, but we havn't even turned our TV on in a month!
I made an error in the earlier post. Here it is again:
Assume you have a $300,000 mortgage @ 6% for 30-yr fix. That means you are paying $1798.65/month. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 18 yrs and 4 months.
That gives you an interest savings of $160,295 ($347,515 - $187,220).
If you choose to carry your mortgage for 30yr and invest your $500 extra per month ($6000/yr) at an 8% annualized rate of return, you will get $734,075 at the end of the 30 yr period.
If you choose to pay the $500 extra towards your mortgage for 18 yrs and 4 months, and then investing $2298.65 ($500 + $1798.65 [since you no longer have a mortgage payment to make]) each month (or $27,583.8/yr) for the next 11 yrs and 8 months at an 8% annualized rate of return, you will get $702,118 ($541,823 + $160,295 [interest savings]).
So you have $734,075 (pre-tax) vs. $541,823 (pre-tax) + $160,295 (tax-free).
Now lets consider taxation drawbacks/benefits. I'm not a financial person so someone please help out and correct any misinformation / misunderstanding on my part. Assume for every dollar of interest you pay, you get back 30 cents.
For a 30yr plan, we would pay an extra $160,295 in interest. That means we get back $48,089 in tax savings. With our investment gain of $734,075, our tax would be $110,111 @ 15% capital gains tax rate. Therefore, our net gain after 30 yrs is: $672,052.
For the pre-pay plan, we get an interest savings of $160,295. With our investment gain of $541,823, our tax would be $81,273 @ 15%. Therefore, our net gain after 30 yrs is: $620,845.
So it appears the 30yr plan wins over the pre-pay plan by $51,208.
I used the calculator below to calculate the capital gains:
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
Spreadsheet -- hey I'd like to see it too! I found HELOC calculations tedious even though I usually like making spreadsheets. If you want to send a spreadsheet to Wise Bread, you can use the contact form.
My findings were that you need to consider the compounded cost of the loan over time and not just the initial cost (which the illustrations tend to emphasize); and also consider whether when the bank credits your account for deposits/loan payments, which banks tend to delay for as long as legally possible. This delay can wreak havoc in the value of the HELOC system.
As far as investing vs. payoff, the smaller the spread (8% in investments vs. 6% in loan rate), the more attractive the payoff; the higher the growth rate, the less attractive the payoff.
Yes, thanks. You are correct. I'll rework the numbers. You can email the spreadsheet to my email: agentinvestor@gmail.com.
Thanks.
You're missing the real point. The main reason the price of wheat is up, as well as oil and any other commodity, is the collapse of the dollar. This will continue as the U.S. can not afford its budget and the world is getting wise to that fact. Inflation? Do not believe government figures, those are heavily manipulated. Believe your gut when you visit the grocery store, pay your insurance or pump gas.
And it will get much worse. For you history buffs, think 'Weimar Republic'. It may not (I hope not) be as bad as that in terms of amplitude, but it will be very bad.
By the way, our family uses a breadmachine.
Hey Tri,
I think you need to rerun your numbers.
Borrowing $300,000 @ 6% for 30 years and paying $500/month extra does cost $187,220 rounded, in interest, but it takes 17 years and 8 months to pay off the mortgage. The mortgage is payed off 12 years and 4 months earlier, not the other way around.
Regarding my spreadsheet, how do I get it to you?
You're right on total wheat acres planted:
(According to this site: http://www.ethanolmarket.com/corngrains.html)
For other people who want to look into this, the NASS database query page is here: http://www.nass.usda.gov/QuickStats/Create_Federal_All.jsp)
Wheat and corn don't really grow in the same places, whereas soybeans and corn to, so I think the greater point is valid. Where farmers can shift to corn, they have, meaning less of whatever the alternative crop would have been--and that choice affects the choices other farms make with regard to whatever alternatives they have. Since (unlike corn) many of those other grains are partial substitues for wheat, less of them still puts price pressure on wheat.
There's a lot of press out there about acres shifted to corn, which I suppose refer to a lot of specific situations and changes versus what was possible. I link to one in the post, and the topic is addressed in the link above.
There are also a lot of particular situations. For example, there was a drop in spring wheat, which is the one that would be most affected by rising corn prices, as that's the acreage where the decision could be made later.
the demonstration's cool, yet it's not practical♫ heeheehee
anyway thankies!
I like this webpage!
Great point Peter, cell phones are little more than electronic leashes, hardly a luxury if you think about it. I had for nearly 4 years only a cell phone and no land line at all, it wasn't really a conscious choice and when my life settled down a little I dumped the cell in exchange land line and DSL.
I also don't watch television or drive a car. Forget about saving money, the freedom is worth it-- the extra time to enjoy life is worth it. If there's any irony it's that my tv watching auto driving friends also complain about the time and money they spend at the gym (which I don't have to, which is not because I'm blessed with a great metabolism; it's because I'm constantly burning calories by walking or bicycling to complete my daily errands.)
I really don't feel like I've given anything up, or been inconvenienced in any way, and the health/cost/time/effort/stress benefits far outweigh whatever I might be missing.
To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.
Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.
That gives you a savings of $347,515 - $187,220 = $160,295.
That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.
Using bankrate.com's savings calculator:
http://www.bankrate.com/brm/cgi-bin/savings.asp,
I get the following pre-tax gains based on $500/month contribution:
Your monthly deposit of $500 for 13 years with an interest rate of 8% compounded monthly with an initial starting balance of $ 0:
Year Balance
1 6440
2 13395.2
3 20906.82
4 29019.36
5 37780.91
6 47243.38
7 57462.85
8 68499.88
9 80419.87
10 93293.46
11 107196.94
12 122212.69
13 138429.71
Final Savings Balance: $138,429.71. Keep in mind this is PRE-TAX gains!!!
As you can see, paying off your mortgage is a much better investment!
To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.
Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.
That gives you a savings of $347,515 - $187,220 = $160,295.
That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.
Using bankrate.com's savings calculator:
http://www.bankrate.com/brm/cgi-bin/savings.asp,
I get the following pre-tax gains based on $500/month contribution:
Your monthly deposit of $500 for 13 years with an interest rate of 8% compounded monthly with an initial starting balance of $ 0:
Year Balance
1 6440
2 13395.2
3 20906.82
4 29019.36
5 37780.91
6 47243.38
7 57462.85
8 68499.88
9 80419.87
10 93293.46
11 107196.94
12 122212.69
13 138429.71
Final Savings Balance: $138,429.71. Keep in mind this is PRE-TAX gains!!!
As you can see, paying off your mortgage is a much better investment!
To answer the question of whether paying off the mortgage with extra money or using it to invest in the stock market, I've made the following comparison.
Assume a mortgage of $300,000 @ 6% fixed for 30 yrs. By the end of the 30 yr term, you would pay $347,515 (rounded) in interest.
If you have $500 extra income per month and you applied it towards the principal each month, you would pay only $187,220 (rounded) in interest for the duration of 12 yrs and 4 months.
That gives you a savings of $347,515 - $187,220 = $160,295.
That means your monthly contribution of $500 for 12 yrs and 4 months would yield a $160,295 tax-free gain.
Using bankrate.com's savings calculator:
http://www.bankrate.com/brm/cgi-bin/savings.asp,
I get the following pre-tax gains based on $500/month contribution:
Your monthly deposit of $500 for 13 years with an interest rate of 8% compounded monthly with an initial starting balance of $ 0:
Year Balance
1 6440
2 13395.2
3 20906.82
4 29019.36
5 37780.91
6 47243.38
7 57462.85
8 68499.88
9 80419.87
10 93293.46
11 107196.94
12 122212.69
13 138429.71
Final Savings Balance: $138,429.71. Keep in mind this is PRE-TAX gains!!!
As you can see, paying off your mortgage is a much better investment!
I beg to differ!
For my scenario, I'm saving much, much more than a mere couple of thousands. I did many test run with the software since I've bought it and I'm seeing savings of over $45K in the first year alone as compared to simply taking the extra money and paying it towards principal each month!!!
But please send me your spreadsheet anyway. I'd like to know if your spreadsheet was set up similar to mine (I also did the HELOC method on the spreadsheet - and it showed me more than a couple of thousands in savings).