Repay or Invest Calculation?



I have extra funds at my disposal, I have 2 choices
- Invest in CD's, MF's, stocks etc
- Pay back extra money into my home loan.

Assume I will make x% in the first option.
Assume my home loan rate is y%.

Ignoring any tax benefits for/against paying
back the home loan, how would I calculate
which would be the better option for me.

I am not looking for online calculators, but rather
looking for a way to calculate this myself - can
some financial wiz help me how to go about it.

Also, if I had to factor in a pre-payment penalty
how would that change the equation.




Simple is x% - y% and adjust for prepayment penalty in year one. But if
you want to see the numbers:

add 1 (one) to (x%-y%)
R = return (1+(x%+y%))
P = prepayment penalty
A = amount of money you're talking about
S1 = net savings in period one (one year)
n = number of years

then A*R - P = S1

which you extend to

A*R^n - P = Sn

However ... it gets a little more complicated than that since
C = changes in your income result in
Td = tax bracket changes (delta)
which affects
Md = your mortgage deductibility
all of which is subject to
Gu = unpredictable changes in tax laws

Get a piece of tax software to get real after-tax numbers, and input
numbers for several years. Then you can adjust x% and y% accordingly.

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