Maximising LTV to minimise interest - is this really optimal?

chamelion

getmore4less wrote: »

You have ignored the monthly payment in your net worth.

getmore4less wrote: »

The later cases don't past the "does it smell right test" so the alarm bells should have been ringing there is something wrong with my spreadsheet.

How can you borrow money at 1.59% put in savings at 1.5% taxed at 40% and be better off?

lol i'm an idiot. Going to fix that up today....

chamelion

in fact, it was a seriously small change...

https://www.dropbox.com/s/xmr9g29xjghh2fj/mortgages.xlsx?dl=0

I've basically added a net salary variable at the top. Net worth i've added 24xnet salaries - 24 x monthly payments.

The figures look quite different now, all in favour of a higher deposit.

Interesting, and thank you!

getmore4less

Still not right

You need to account for the interest on the difference in payments not just the difference.

Easier to make the payments the same on the mortgage and let that be the initial estimate.

here is the formula for offsets that works for most* interest rates and savings amounts.

This should work for your cases and you can resolve to find the savings rate that is needed to make the higher rate worl

M : mortgage debt
S : standard rate
O : offset rate

C : savings capital
N : net savings rate

(M*S) - (C*N) == (M-C)*O

which simplified is

C(O-N) == M(O-S)
which become a simple ratio check of the mortgage-saving against the rate differential

C/M == (O-S)/(O-N)


*There are some boundry cases that are obvious.

chamelion

getmore4less wrote: »

Still not right

You need to account for the interest on the difference in payments not just the difference.

Easier to make the payments the same on the mortgage and let that be the initial estimate.

here is the formula for offsets that works for most* interest rates and savings amounts.

This should work for your cases and you can resolve to find the savings rate that is needed to make the higher rate worl

M : mortgage debt
S : standard rate
O : offset rate

C : savings capital
N : net savings rate

(M*S) - (C*N) == (M-C)*O

which simplified is

C(O-N) == M(O-S)
which become a simple ratio check of the mortgage-saving against the rate differential

C/M == (O-S)/(O-N)


*There are some boundry cases that are obvious.

Keeps getting more complex...

I've added column L "wealth accumulation" which basically treats the incomings as a regular saver, assuming same interest rate. the total net worth after 2 years now does not just take the incoming and outgoing, but now adds the output of column L, i.e. taking in income - montly outgoing + interest on that money at what you specify in C6.

Close? (enough?)