Puremass Home Puremass Mall Puremass Help LA Pig Judge Pig
Page: 1 2 3 4 of 4 Yellow Pig's Index

Some modeling tips

Modeling your expenses. Use the "tax-deductible expenses" to model any payment that you can claim as tax-deductible. Use the "non-deductible expenses" and the two rent fields to model the other payments and income, such as the cost of extra mileage on your car. (Check with your accountant to find out which of your expenses are tax deductible). These fields are interpreted as APRs, meaning that they are compounded annually and then averaged over 12 months. Your investment ROI is compounded monthly just like your bank accounts.

Prepayments. Paying off a 30-year loan in 25 years is the same as 25 year loan with the same interest rate, provided that prepayment penalties do not apply. So if you want a 25-year loan, just get a 30-year loan and pay it off in 25 years. In the calculator, you would choose the "custom" loan type, and enter 25 as the "total number of years."

Refinance. To calculate your refinance, you should take the present values of the output columns as the input to your new loan. The "break-even amount" at the time of refinance becomes the new cost of the home. The "payoff amount" is the loan amount. Keep in mind that if you refinance, you start a new 15-year or 30-year schedule. If you want to make other changes, see the next section.

Adjustments. If after some years, you become parents, you can still use the calculator to model your changing taxes and expenses. If expenses are the only change, you can model the loan from its beginning with new values for the expense and rent growth rates. If taxes are part of the change, you would follow this example.

Suppose you have a 30-year $100,000 loan for your $300,000 home. After 3 years, your payoff amount is $90,000 and your break-even amount is $310,000. And for some reason, your expenses increase and your taxes decrease. Using the calculator, you would enter $310,000 as the cost of the home, $90,000 as the loan amount, and 27 as the number of years in the loan. If your loan is a 5/1 ARM, you still have 2 years of fixed rate remaining; so you would enter 2 as the number of years of fixed rate. You would then make adjustments to the other fields such as variable rates, expenses and incomes and their growth rates, and investment ROI.

Copyright © 2001-2003 Pure Mass Communications