From the video
The Floor Worksheet
You came from the video about paying the mortgage down versus investing. Here is the worksheet that finds your number. Your rate goes in, your bracket goes in, your floor comes out. Free.
Get the free worksheet
Two cells to fill in. It works out the monthly-compounding step, the tax step, and the floor they add up to — then tells you which of the three arguments against paying your house down actually applies to you. The Debt Freedom Blueprint and its workbook come with it.
It is also right here, so you do not have to wait:
The Floor Worksheet (Excel)
The Floor Worksheet (printable PDF)
The Debt Freedom Blueprint (PDF)
The Blueprint workbook (Excel)
The number from the video
All of it comes from one loan: $380,000 at 6.5% over 30 years, a principal and interest payment of $2,401.86, and $500 a month of extra principal.
| Step | Rate | What it is |
|---|---|---|
| Your note rate, as written | 6.50% | where everybody starts, and stops |
| Add the monthly-compounding step | 6.70% | your loan charges monthly, the market is quoted yearly |
| Add the tax step, at 15% on gains | 7.28% | you keep every dollar of interest you never pay |
That last number is the floor. Below it, the extra money does more good on the loan. Above it, the market was worth it. Your note rate was never the line — it sits 0.78 points below it.
Why your rate is not the number
Every version of this argument holds your six and a half against the market's ten, and they all break in the same place, because those two were never the same kind of number. Yours is charged monthly and taxed never. Theirs is quoted yearly and taxed when you sell.
The textbook calls that crossing point the indifference rate. Fred calls it the floor. It moves with your rate and your bracket, which is why there was never one national answer, and why anybody who hands you one is guessing.
Run it on your own numbers
Mortgage Payoff Calculator Extra Payment Calculator All 10 calculators
When the floor does not decide it
If your rate starts with a three, stop. Your floor drops below what a plain bond fund could return, so the argument is over and you won it the day you signed. If your employer matches any part of that money, the match wins, because neither side of this floor beats free money. If you have no cash cushion, build that first, because a house you cannot eat is not safety, and a card charging more than your floor goes before either.
And one the arithmetic cannot answer: if the market fell hard the month after you moved that money, could you still make the payment, and could you still sleep? If either answer is no, your floor is not really the number above, whatever the sum says.
The four questions this worksheet does not answer
Can you recast your loan, or is it FHA and cannot be recast at all? When can your PMI come off, and against which value? What will escrow do next year? Should retirement money go near the house at all? The Payoff Planner Pro answers all four on your own numbers.
See the Payoff Planner Pro →One payment of $97. Nothing renews. 30 days to change your mind.