National Institute of Financial Education
2507 Falls DriveChapel Hill, NC 27514
Here I simply build up two investment accounts, one with a large initial lump sum equal to the loan balance, and one initially at zero but which is contributed the equivalent to the monthly payment. If the investment is after-tax the yield is reduced by the tax rate, otherwise it is unchanged. The savings due to tax deductions on the loan are also added as contributions to the investment to help demonstrate the effects of tax deductibility of interest that is lost in the payoff case.
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