Running some numbers on accelerated mortgage payments and it seems to be a better option than non-accelerated but not better than investing in the market. Hoping someone can tell me what am I missing...Here's the math:
Year 2 etc are similar but with higher dollar value for P and I but still same % of total
Meanwhile if I were to invest $1948 (the difference in yearly acc vs non-acc payments) each year at 7% interest rate (compounded annually) - after five years it's total value is $11,202.44. This is greater than the $8,549 principal I would pay down in principal and the extra $382 I would pay in interest by not doing accelerated payments. At the end of five years, I could put $9740 (1948*5) + $1462 total interest earned towards the principal and start over again (or just keep the capital and keep adding and pay lump sum towards the end).
My original thought was that if an index fund can give me an average of 7% return, that's still a 1% better yield than being put towards mortgage (3% for interest I wouldn't pay down and 3% for the principal I would pay down)...But I am almost convinced I am running the wrong numbers or am missing something (other than the standard market returns are not guaranteed). Thoughts??
EDIT: Seems like the formatting is off for the table so here are the numbers:
Year 1
NonAcc Total - 23,374 Interest - 9,462.54 Principal - 13,911.46 %I - 40% %P - 60%
Acc Total - 25,321.92 Interest - 9,441.85 Principal - 15,880.07 %I - 37% %P - 63%
Diff btw
Acc-NonAcc - 1,947.92 Interest - -20.69 Principal - 1,968.61 %I - -3% %P - 3%
Year 5
NonAcc Total - 97,991 Interest - 37,577.08 Principal - 60,413.92 %I - 38% %P - 62%
Acc Total - 106,157.28 Interest - 37,194.33 Principal - 68,962.95 %I - 35% %P - 65%
Diff btw
Acc-NonAcc - 8,166.28 Interest - -382.75 Principal - 8,549.03 %I - -3% %P - 3%
Year 2 etc are similar but with higher dollar value for P and I but still same % of total
Meanwhile if I were to invest $1948 (the difference in yearly acc vs non-acc payments) each year at 7% interest rate (compounded annually) - after five years it's total value is $11,202.44. This is greater than the $8,549 principal I would pay down in principal and the extra $382 I would pay in interest by not doing accelerated payments. At the end of five years, I could put $9740 (1948*5) + $1462 total interest earned towards the principal and start over again (or just keep the capital and keep adding and pay lump sum towards the end).
My original thought was that if an index fund can give me an average of 7% return, that's still a 1% better yield than being put towards mortgage (3% for interest I wouldn't pay down and 3% for the principal I would pay down)...But I am almost convinced I am running the wrong numbers or am missing something (other than the standard market returns are not guaranteed). Thoughts??
EDIT: Seems like the formatting is off for the table so here are the numbers:
Year 1
NonAcc Total - 23,374 Interest - 9,462.54 Principal - 13,911.46 %I - 40% %P - 60%
Acc Total - 25,321.92 Interest - 9,441.85 Principal - 15,880.07 %I - 37% %P - 63%
Diff btw
Acc-NonAcc - 1,947.92 Interest - -20.69 Principal - 1,968.61 %I - -3% %P - 3%
Year 5
NonAcc Total - 97,991 Interest - 37,577.08 Principal - 60,413.92 %I - 38% %P - 62%
Acc Total - 106,157.28 Interest - 37,194.33 Principal - 68,962.95 %I - 35% %P - 65%
Diff btw
Acc-NonAcc - 8,166.28 Interest - -382.75 Principal - 8,549.03 %I - -3% %P - 3%