Author Topic: Article Math Help  (Read 355 times)

accolay

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Article Math Help
« on: September 14, 2018, 12:35:48 AM »
Quote
https://www.msn.com/en-us/money/realestate/making-extra-mortgage-payments-not-so-fast/ar-BBNhf5j?li=BBnb7Kz&ocid=mailsignout

The debate continues. Article doesn't say that after 11 years you'd have a payed off house and still able to invest that $2000 plus the $2005 from what would have gone to the principle and interest for 19 years which would still be $1,366,959. Yeah, $32,041 less than if you'd invested 2000 for 30 years but you'd own the house for 19 years.

Also assumes you'd be able to always invest that 2k/m and get a steady interest rate over 30 years. Who'd here on MMM want to do that anyway?

What am I missing?

MDM

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Re: Article Math Help
« Reply #1 on: September 14, 2018, 01:33:51 AM »
Article fails some quick tests.

To have a $2K/mo payment on a standard 30 year loan with $360 of the first payment going to principal requires a loan amount of $343,477 and an interest rate of ~5.73%.  Strange numbers but it's just an example.

The first real problem is that with such a loan the last payment will have $9.50 in interest, not $60.

The major problem is that an extra $2000 paid in the first month reduces total interest paid by $8940, not $60.

The root of the problem is the article's assumption that "...any extra payment applies to the last payment due." Some loan contracts may be so worded, but the more common practice is for additional payments to reduce principal immediately.

Given those issues, I didn't look at the rest of the article.

accolay

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Re: Article Math Help
« Reply #2 on: September 14, 2018, 01:12:12 PM »
Funny- I just realized there was more article to read :) But I can't be bothered to read it either. Maybe they're assuming a 75k downpayment?

Who writes these articles? Just click bait?