101

Your calculations are correct if you use the same mortgage rate for both the 15 and 30 year mortgages. However, generally when you apply for a 15 year mortgage the interest rate is significantly less than the 30 year rate. The rate is lower for a number of reasons but mainly there is less risk for the bank on a 15 year payoff plan.


83

There is no numerical convention in finance that I have ever seen. If you look at statements or reports that measure growth when the starting value is negative or zero, you typically see "n/a" or "-" or "*" as the result. Any numerical result would be meaningless. Suppose you used 100% and another company had a legitimate 150% gain - where would the 100% ...


54

The APR is the amount of interest that you would pay if you held their money for a whole year. If you borrowed the £100,000 for a year, didn’t pay anything until the end of the year, and then paid it all off, then you would indeed be paying 20%, or £20,000 interest. However, since you are making payments, each month that goes by the interest charges decrease ...


31

The future interest is not yet a part of the balance you see, it will be added every month. So next month, less interest will be added to the balance (compared to not paying that larger amount). What you see in the balance is all principal. Every month, the interest gets added, you payment gets deducted (hopefully it is larger than the interest), and you ...


30

No. This logic is dangerous. The apples to apples comparison between renting and buying should be between similar living arrangements. One can't (legitimately) compare living in a 600 sq ft studio to a 3500 sq ft house. With the proposal you offer, one should get the largest mortgage they qualify for, but that can result in a house far too big for their ...


28

"Why would anyone ever get a 15 year instead of just paying off a 30 year in 15 years? Because the rate is not the same. Never that I've seen in my 30 years of following rates. I've seen the rate difference range from .25% to .75%. (In March '15, the average rate in my area is 30yr 3.75% / 15yr 3.00%) For a $150K loan, this puts the 15yr payment at $1036, ...


28

First you should understand the basics of how insurance companies make money: In a simple scenario, assume 1,000 have car insurance. Assume that on average, 100 people have accidents per year, and that each accident costs $10,000. So, we can expect total costs to be $1,000,000 per year. Some of those costs will be paid by the drivers, who have some sort of '...


26

A value of zero or a negative value makes the percent change meaningless. Saying 100% when going from 0 to some other value is simply wrong. I have seen a similar situation several times when looking at a public company with a loss last quarter. On Google Finance or some other service, the PE ratio will be blank, N/A, or something like that. If the company ...


21

Assuming that you qualify for Social Security and it is still around when you are age 67, the biggest problem you will have is that for decades you will have 0 in your annual earnings. This calculator on the SSA.Gov website will let you enter zero income for future years, you will see what impact that has on your benefits. Using the default values for a ...


21

There's one factor the previous posters apparently missed here: You say "self-employment tax"--in other words, at least some of that $16k is from self employment. In a normal employment situation the FICA tax is taken out of your paycheck, it's normally spot on and generally doesn't show up on your tax return. However, for the self-employed it's another ...


21

The Social Security payments for retirement are based on 35 years of indexed earnings. If you have less than 35 years of earnings, then your record will have zeros. If you have more than 35 years, the lowest indexed amounts will be dropped. If someone is receiving benefits but is also working, then the benefits are re-calculated (and thus increased) if one ...


21

Your mistake is that in your calculation of interest ("10%") you divided the total amount of interest paid by the original amount you borrow. However, you don't pay interest for the original amount borrowed, but for the amount you are still borrowing during the time interval for which the interest is due (e.g. every month). And since the system assumes ...


19

The FICO score is an invention of one company, FICO (formerly called Fair Isaac). The exact formula is a trade secret that the company does not reveal. This allows them to maintain a monopoly on FICO scores. The only way to know what your real FICO score is is to ask that single company what it is. They will not tell you, or anyone else, how to calculate ...


18

Thanks for your question. Unfortunately, you're correct that these types of benefits often are not well explained. Let me apologize in advance for a long answer, but I'd like to provide the most comprehensive explanation I can. Additionally, there are a number of factors involved that weren't mentioned in your example, but that could substantially affect ...


17

Here are a few points to consider: Taxes: As a consultant, you will be responsible for the employer portion of the Social Security and Medicare taxes, and you might have to pay for state unemployment insurance and state disability insurance, as well. Office expenses: As a consultant, you may be required to buy your own laptop, pay for your own software ...


17

At JoeTaxpayer's suggestion, here's a graphical representation. Blue is the statement period (so the period in which you actually buy stuff) and green is the grace period, which you can think of as the pay-off period. Typically the end of the grace period coincides with your due date on your statement. The labels on the left of the bar is start of the ...


17

Social Security tax only applies to the first $118,500 you earn in a year. See the Social Security Administration's website for more info. You should see a 6.2% increase in after tax earnings now. If you switch employers mid-year, they will start withholding social security again.


17

Can I pay $12,000 extra once a year or $1000 every month - which option is better? Depends when. If you mean 12K now vs 1K a month over the next 12 months, repeating this each year, now wins. If you mean saving 1K a month for 12 months then doing a lumpsum, the 1K a month wins. Basically, a sooner payment saves you more money than a later payment. The ...


16

This isn't an effect that works either for you or against you, it's just a notational coincidence or numerology-like observation. A $10 absolute gain and a $10 absolute loss are even. The mistake here is to think there's any reason percent changes should match when you get back to even. I grant you, people may psychologically connect a 50% loss with a 50% ...


16

In the US, withholding has nothing to do with your actual tax liability. You control the amounts withheld via form W4 that you provide to your employer. It is up to you what to write in that form, and how much is withheld will be based on that. You may limit the withholding and have nothing withheld at all, or withhold twice as much as your real tax ...


16

You asked, then which monthly debt payment should you calculate? I think the only legitimate answer to this question is, "it depends" (on the context). Why are you doing this calculation and what else is involved? Generally, in a financial sense, debt means money a borrower owes a lender - it's a deferred payment, usually including interest, for some ...


15

If your loan payment schedule was set up correctly, you should have been paying $840.71 per month for 5 years and would have been finished with the loan by 2011. By paying only $700 each month, you have effectively extended the loan to a longer term than 5 years, about 6 years and 4 month. Who told you that the monthly payment was $700? the lender? or is ...


14

Not sure why CAGR is a problem for both directions. I used to be a physicist, and, when I taught classes in graduate school, students always wanted to use the terms "accelerate" and "decelerate" to describe "speeding up" and "slowing down". But acceleration is just a vector with magnitude and direction. There's nothing special about slowing down that it ...


14

The Rule of 72 is a rough guide for calculating how long it would take to double your investment through compound interest, given a fixed yearly rate of return. It means that the time taken (in years) to double your investment value is approximately equal to: 72 / return of investment (%) per year. Example: Assuming you have invested an amount, X, in ...


14

Here is a quick way to estimate the reduction in your term. The numbers you need to start with are in bold. Take the amount of the extra principal payment. For example, £ 500. Take your interest rate. For example, 2 %/year (as an APR). Calculate your monthly interest rate, and convert to a decimal. For example, 2 %/year * (year/12 months) ...


13

Common wisdom suggests a starting point of an 80% replacement rate to final income. It also suggests a 4% initial withdrawal rate from retirement assets leading to a goal of 20 times final income as the target nest egg. Think of these numbers as a mid point of a bell curve. The retirement budget is personal. During your life were you saving for the kids' ...


13

If the interest rate in both mortgages is the same, then yes, you will end up paying the same amount in interest if both are paid off in 15 years. However, in practice, almost always a 15-year mortgage will have a much lower interest rate that a 30-year mortgage. Also, if you are thinking of taking out a 30-year mortgage with the intention of paying it off ...


13

That means if you contribute $1000, and that is equal to 5% of your salary (salary of $20k): $400 = 100% match = $400 $400 = 40% match = $160 $200 = 25% match = $50 ------------------------ $1000 = $610 match It's basically the same as taxes; you can think of it as the marginal rate. So, for the "40% on the next 2%", that means that "first take the amount ...


13

A way to imagine taxes is as if you were pouring your income into a glass with lines along the side. Up until the first line is free (deduction and exemptions). Everything between that line and the next one is taxed at 10%, then 15% between the next two lines, etc. When you put in your first W-2, the income filled up the free space and the lower tax rate ...


13

Generally, no, you would not be charged interest. The reason for this is the concepts of the billing period and the grace period. The billing period is a month-long period that your monthly statement covers. For example, my credit card billing period ends on the 16th of each month. So my last statement covered all transactions between May 17 and June 16. ...


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