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Loan Balance
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Current Payment
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Loan Interest Rate
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Loan Interest Deductibilty
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Investment Return Rate
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Tax Bracket
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Investment Type
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After-Tax
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Borrowed Investment - Payoff Investment :
In your case it is better off to keep the loan
Payoff Investment - Borrowed Investment :
In your case it is better off to payoff the loan
Assumptions:
Here I simply build up two investment accounts, one with a large initial lump sum equal to the loan balance, and one initially at zero but which is contributed the equivalent to the monthly payment. If the investment is after-tax the yield is reduced by the tax rate, otherwise it is unchanged. The savings due to tax deductions on the loan are also added as contributions to the investment to help demonstrate the effects of tax deductibility of interest that is lost in the payoff case.
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BORROWING
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PAYOFF
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Month
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Loan Bal (B)
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Int Paid(B)
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Tax Ded (B)
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Inv Bal
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Contrib (P)
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Inc Earned (P)
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Bal (P)
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Information and interactive calculators are made available to you, as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to anyone’s individual circumstances. All examples are hypothetical and are for illustrative purposes. Related to tax implications, property purchase and sale prices, and loan terms clients need to seek personalized advice from qualified real estate and tax professionals.