You need to examine the cash flows. rather than trying to figure out what an ROI based on a projected equity amount really means. There are four cash flows, two each for the two options: 1. Financing $90,000 @ 8% for 10 years results in a $1117.00 monthly payment, or $134,040 for the 10 years....$44,040 in interest cost. 2. You have lost the opportunity to invest your downpayment: $10,000 @ 11% for 10 years = $28,394. Total financing cost: $ 72,434 3. By prepaying, you lose the investment income from your $100,000: $100,000 @ 11% for 10 years equals $ 283,940 4. You can invest the monthly payment, since you don't have a mortgage: the future value of $1117 @ 11% (monthly) is $ 218,054 Total prepayment cost= $65,886The actual cost of financing is $6548. This works out to about $55 a month. If you assume there is some risk in the 11% return rate (and there is always risk), then prepaying may not be such a bad option.Let me note that I actually used yearly numbers, rather than monthly, so the totals are off a little bit.Pat
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