On Sun, 16 Apr 2006 01:15:07 GMT, "Gary Wachs" wrote:


Ok good - outstanding, that's exactly what I needed.

In your opinion is it a good idea to make this contribution.
Having crunched the numbers it certaintly looks worthwhile. It makes PMI go
away, it saves $80k and it shortens the loan by 6 yrs.
Historic S&P growth of about 12% annually, if it continues, would outperform
the above savings. Maybe I should put the money into the market instead of
the principal.

You have a few things to consider with your extra payment.

1. Repayment
What happens is that you make the extra payment when your $1 is worth $1 but the
return on that investment doesn't come back to you until the end of the loan
period when the $1 is worth say $0.80. In your case if the $1 was worth $0.80
at the end of the loan period and you invested $25,000 you would need to save
paying in excess of $31,250 due to shortening the loan period to make it
worthwhile.

2. Investing
If you invested the $25,000 for the period of the loan you would also have to
consider how much tax you would need to pay on the investment.

What you then need to do is to deduct the tax from the interest earned each year
for the period of the loan and do a present worth analysis over the shortened
period of the loan on the difference each year to take into account that the $1
in say 10 years is worth say $0.80 and compare this with the amount returned by
the repayment in 1. above to finally have your answer.
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Cheers . . . JC