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From: ark@alice.UUCP (Andrew Koenig)
Newsgroups: net.consumers
Subject: Re: mortgage question
Message-ID: <3592@alice.UUCP>
Date: Fri, 19-Apr-85 09:21:13 EST
Article-I.D.: alice.3592
Posted: Fri Apr 19 09:21:13 1985
Date-Received: Sat, 20-Apr-85 03:16:32 EST
References: <69600022@hp-pcd.UUCP>
Organization: Bell Labs, Murray Hill
Lines: 24

>    For one thing they did not even mention taxes in the article. That $172K
> is all deductable so a large part of the savings will simply go to the
> goverment as higher taxes. They also didn't figure in the value of having
> an extra $130 a month to spend. If the 30 year mortgage were to be paid off
> with exactly the same payments as the 15 year then it would be prepaid sooner
> and only cost an addition $18,600. After taxes that could be as low as $10,000.

Ummm...something's wrong here.

If you take out a 30-year mortgage and make exactly the same payments
on it as you would on a 15-year mortgage at the same interest rate,
your total cost will be exactly the same for both loans.

Alternatively, if you take the difference between the payments for
the 30-year and 15-year terms and invest it at the same interest
rate as the mortgage, after 15 years you will have exactly enough
money to pay off the balance of the 30-year loan.  This is true
whether you include tax consequences or not.

Finally, a taxable investment at n% is equivalent to a non-taxable
investment (i. e.: municipal bonds) at (n*(1-k))%, where k is your
net marginal tax rate.  In other words, if your marginal rate
is 40%, a 15% taxable investment (hard to find) is equivalent to a
9% tax-free investment.