How to model a home loan

[i_heart_frp]

I'm in the process of buying a house and I'm trying to determine how to structure the home loan. I have been trying to use FRP to model the long term impacts of different scenarios. The problem I'm having is that the outcomes tend to be the opposite of what I would expect.

Consider two 30-year loan scenarios: 15% down at 4.5% vs 20% down at 4.375%. I would expect that putting less down at a slightly higher interest rate would yield the larger average Median Ending Portfolio Value and Probability of Success but it's always the opposite.

Here's how I've attempted to model the loan: I've separated out the principal and interest (PI) from the taxes, insurance, and maintenance (TIM). I've modeled the PI as a No-COLA expense for 30 years, and the TIM to track inflation to End of Plan (hopefully this is a forever home). I've also added an expense entry for the sum of Down Payment, Settlement Costs, Prepaids for Start of Plan.

I have my investing style set to Above Average Risk. I would assume that the average returns of the market (9.5%) would more than make up for the differences in interest rates but that's not what I'm seeing.

Is there something I'm missing in my modeling that could account for this behavior?

[jimr]

First, it's essential to look at the year-by-year detailed view tab after running the planner to verify that the simulation is handling all the cash flows the way you expect. In the details view tab, you can click the "show more detail" radio button on the top right to see extra information and also if you right-click on a column header in the detailed view table, there's a popup menu that has an option to "show all columns" which displays even more information. This can be helpful in trying to understand what might be happening when the results aren't what you expect.

Aside from that, It's tough to say what might be happening without seeing the details. If you wouldn't mind depersonalizing your data file and changing around all the numbers to obscure all personal information, I'd be happy to take a look to see what's going on.

You can email the scrubbed .frp file to info@flexibleretirementplanner.com

Again though, since email is not secure, please be sure to change around the numbers so the file doesn't contain any of your actual financial information.

Jim

[Tanker_62]

Wait, you're doing that as well? That's above and beyond the call of duty, especially when compared to other software support teams. I'm in the process of working on a new loan after I'm done paying an already existing mortgage, so I'll see if I can handle it myself, if not, may I send you a message?

[jimr]

I'm happy to help out with any questions you have about how to run the planner.

I do have to add the caveat that I do not offer any financial planning or investing advice whatsoever and nothing I say or post should be understood as such.

[elpind]

Perhaps I don’t quite understand but.......why not just put in principle and interest in one field with no inflation factor and taxes and insurance in another field with an inflation rate for the loan term. To me this is pretty near real world situation.

[jimr]

Perhaps I don’t quite understand but.......why not just put in principle and interest in one field with no inflation factor and taxes and insurance in another field with an inflation rate for the loan term. To me this is pretty near real world situation.

My read of the OP's post was that's what they were doing except they extended out taxes and insurance to the end of the plan, since they intend to stay in the house indefinitely.