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Topic: Miscellaneous
Number of pages / Number of words: 4 / 1034
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What are the relevant cash flows to consider in this decision? For example, do you consider the tax implications and if so, then how?

The relevant cash flows are given below. The sign of the cash flow is indicated in brackets.

Repayment of extra principle = Negative

Interest savings on mortgage due to additional principle repayment = Positive

Reduction in tax benefits on interest paid on mortgage = Negative

Opportunity cost (return lost on investment) = Negative

Tax payments on income earned from investments under investment option = Positive

OUTPUT

Loan Balance 135,000...


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If it is after-tax it will be more available to you, but every 12 months you will be forced to pay tax on your annual yield. This also assumes that you take the extra tax savings by NOT prepaying (prepaying lowers your deductible interest payments) and you put the tax savings into the investment as well...


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