How do we show what the difference between a 15 and a 30-year mortgage payment would look like if applied to a PUA (paid up addition) on a life insurance policy?
Using the Loan Analysis Calculator we can see that when the savings rate and loan rate are the same, the gross costs of each mortgage are identical to each other when properly measured over the same time frame. However, when the mortgage interest deduction is taken into account, the longer mortgage has less cost.
In order to show the difference in the accounts when the same cash flows are applied, simply click the radio button next to payment on the longer mortgage, and put in the same payment required for the shorter mortgage.
This is going to assume that the earnings on the difference in the payments, is going to be the savings rate so keep that at a Life Insurance IRR number. To get a more accurate analysis, run a life insurance illustration which does not include the additional payment and then run one, with the additional payment as a PUA, to see how much money would be available in the future to pay off the mortgage early. Also, you will have the difference in the tax deductions to add to PUA’s as well.