Question:

How to do interest cost calculation to find after-tax interest cost of two FRM loans?

Answer:

To do interest cost calculation and find after-tax interest cost of two FRM loans, you have to know:

  • the amount of the loans;
  • their amortization periods;
  • down payment and points you may be buying;
  • whether mortgage insurance will be necessary, and whether it is deductible for you;
  • the loan's interest rate;
  • closing costs.

The interest cost calculation is most easily performed with mortgage comparison calculators. After putting all the loan details in the calculator, it will spit the interest cost of the loan, and depending on your tax bracket, you will be able to find out which one will be a saver regarding taxes.

If you are unable to use a mortgage calculator, to do interest cost calculation ask your lender to provide you with the monthly payments for each FRM loan. Then, multiply your monthly payment by the number of months you will be holding each FRM for and subtract the principal. The difference is the interest cost of each FRM loan.

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