Mortgage calculations are so unintuitive...
The net is your interest rate (2.3%).
Your 6%-ish return would be correct if the 10K was a normal investment and you got your 10K back after the 20years. But you don't - it's gone.I don't think i have a good internal visualisation/representation of how my capital is included in the return. Can you explain it a bit more please?
The calculations are logical and certainly since I've learned (through AAM) to focus on the interest it takes away much of the complexity, but for the average person their intuition is to factor capital payments in the 'cost' etc. - their intuition leads them astray or it is unintuitive...People make them much more complicated than they actually are.
If you overpay a loan which charges you x% a year, you are saving x% a year. No more and no less.
Brendan
The sum of all the differences between 230 and 624 is the initial 10,000 which you have left out of calculation.I was surprised by the ~3 times difference in additional cashflow vs the "calculated saving".
it's not that simple...(624-230)*20 = 7880, or maybe I misunderstood you.The sum of all the differences between 230 and 624 is the initial 10,000 which you have left out of calculation.
So, based on wording like this, 10,000 overpaid on a loan of 2.3%, one would expect a 230 p.a. saving.
BUT, in fact, the outgoings actually reduce by 624.36 p.a.
Strictly speaking that's only true of an interest-only mortgage.If you overpay a loan which charges you x% a year, you are saving x% a year. No more and no less.
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