That's a good point about interest costs. The interest costs don't decline in the spreadsheet because I'm just calculating the interest on the $200k above and beyond the baseline house. We couldn't touch that principle in a 10 year time frame (which might mean we shouldn't buy it :-).
Often a good way to approach these "either this or that" problems:
1) Pick a total annual amount of of money
2) Split it among your options. E.g., mortgage payments, investments, house operating costs.
3) Track things from year to year
4) Do this for the two different houses, so there will be two sets of columns (assuming each year is a different row): one set for each house.
5) Continue at least until each house is paid off. If you can pay one house faster, that means more of the total annual amount is available in subsequent years for investment.
6) Compare results.