California Mortgage Calculator: Pay off loan or invest?
🏛️ California Tax Considerations
As a San Francisco resident, your mortgage vs. investment decision should consider the city's unique market dynamics, local costs, and specific financial factors that differ from state averages.
💡 Key Tax Highlights:
- Property taxes at 1.18% are within typical ranges
- High property values may limit mortgage interest deduction due to $750k cap
🎯 Planning Considerations:
- High cash buyer competition (45%) may affect market timing
- Fast-moving market (avg 25 days) may limit negotiating power
- High parking costs ($350/month) add to total housing expenses
- Earthquake insurance adds $1200/year to housing costs
- High tech employment may involve RSU compensation affecting mortgage qualification
- Rent control laws affect 170,000+ units, impacting investment property returns
- Proposition 13 creates significant property tax variations by purchase date
- Seismic retrofit requirements may apply to older properties
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Scenarios
Interest Savings:
$0
Money saved on interest payments
Time Saved:
0 months
Loan paid off earlier
Tax Deduction Lost:
$0
Tax benefits you give up
Net After-Tax Benefit:
$0
The real bottom line
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| Month | Principal | Interest | Tax Savings | Total Payment | Balance | After-Tax Reality Check | |||
|---|---|---|---|---|---|---|---|---|---|
| Instead | After | Should I Invest? | True Benefit | ||||||
| (Pre-Tax) | (Pre-Tax) | (After-Tax @ 15%) | (Lifetime PV) | ||||||
📊 How to read the After-Tax Analysis
Understanding the columns:
- Tax Savings: Monthly tax deduction from mortgage interest (if you itemize)
- Should I Invest? (After-Tax @ 15%): What your investments would be worth after paying 15% capital gains tax on gains only (tax impact starts small and grows as gains accumulate)
- True Benefit (Lifetime PV): The present value of lifetime benefit from each additional payment, comparing:
- ✅ Present value of interest saved over remaining loan term
- ❌ Tax deductions lost over remaining loan term
- ❌ Opportunity cost of not investing that payment instead
📐 True Benefit Formula:
For each additional payment (Present Value over remaining loan term):
PV Debt Benefit = Present value of interest saved minus tax deductions lost
Investment Opportunity Cost = Future value of investment after capital gains tax minus principal
True Benefit = PV Debt Benefit - Investment Opportunity Cost
This shows the lifetime present value impact of each payment, not just monthly differences
Example with $100 payment in month 1 (359 months remaining):
- Monthly interest saved: $100 × 5.125% ÷ 12 = $0.43/month
- After-tax monthly benefit: $0.43 - ($0.43 × 24%) = $0.33/month
- PV of 359 payments: ~$87 (discounted at after-tax loan rate)
- Investment future value: $100 × (1.00583)^359 = ~$850
- Investment gains: $850 - $100 = $750
- Capital gains tax: $750 × 15% = $112.50
- After-tax investment value: $850 - $112.50 = ~$737
- Net investment benefit: $737 - $100 = $637
- True Benefit = $87 - $637 = -$550 (investing wins big!)
Key insights:
🔴 Negative "True Benefit"
You're better off investing the extra money instead of paying off the loan early
You're better off investing the extra money instead of paying off the loan early
🟢 Positive "True Benefit"
Paying off the loan early is better than investing (after all taxes)
Paying off the loan early is better than investing (after all taxes)
📈 Higher tax bracket = More valuable mortgage deduction
The higher your tax rate, the more valuable your mortgage interest deduction becomes
The higher your tax rate, the more valuable your mortgage interest deduction becomes
📊 Standard deduction vs Itemizing
If you don't itemize, you get no mortgage interest deduction benefit
If you don't itemize, you get no mortgage interest deduction benefit