Comparing global cost of Repayment vs Investment based Mortgage

Repayment Mortgage vs Investment Based Mortgage Calculator

This calculator computes the global cost of buying house comparing the repayment mortgage with the investment (ie ISA) based one.

Experiment with different inflation and investment growth assumptions. This will highlight that the choice of mortgage is very much dependent on your view of the future*.

A balanced cautious view for the traditional 20-25 year mortgage would be to go for the investment route, but with the monthly investment being made in the expectation of LOW investment returns. That way any extra performance feeds into a nice surplus.

For shorter terms (under 10 years) investment volatility swings the view towards the certainty of the repayment route.

Intermediate terms are very much dependent upon ones personal position and attitude towards risk and reward.

	Data
Mortgage required:
Expected Investment Growth:
Term of Mortgage, in years:
Interest rate , enter 10% as 10:

	Repayment Mortgage Figures
Monthly payment:
Total repaid over the term:

	Investment Mortgage Figures
Monthly investment:
Monthly interest payment:
Monthly total (investment plus interest):
Total cost over the entire term:

The table below shows the which option (repayment or investment) is best for a range of different growth assumptions.

A POSITIVE figure in Route Comparision indicates that the INVESTMENT route is better value for money. A NEGATIVE one means that the REPAYMENT route has the edge.

Growth (Compared to your assumption)	Future Fund Value	Route Comparison
6%pa LESS
4%pa LESS
2%pa LESS
Your growth assumption proves correct
2%pa MORE
4%pa MORE
6%pa MORE

Calculator Notes

The Route Comparision figure is derived as follows. Figure=Total Repayment Route Cost less Total Investment Route Cost plus Future Fund Value less Mortgage
Investment charges - these are based on a Legal & General ISA. Actual charges in your own case may be different.
For mathematical purity the interest is calculated on the basis of the twelth root of the rate selected, and the outstanding capital recalculated each month. In practice mortgage maths is different in detail and so do not expect these figures to match those of any quote. (For example most lenders DO NOT recalculate the outstanding capital balance with every payment, for the simple reason that this gives them a higher revenue.)
Mathematicians will note that surely, all other things being equal, if the interest rate and investment growth rate are the same, there should be no difference between the two routes, whereas this calculator shows that when these assumptions are made, the investment route is always the most expensive. This is because of the costs of investment.
It does not include insurance.