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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.
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