A colleague says that he is planning to pay down his mortgage by making double payments each month. In so doing, he claims that he can save over $200,000 in interest payments to the mortgage company. His current mortgage rate is 4% and his investment portfolio is yielding about 5% of which half of it is subject to the capital gains tax rate of 15% and half is the growth of the investments.
Required (Be sure to consider ALL relevant factors in your responses):
A. If his current marginal tax rate is 30% and it will remain constant over the foreseeable future, is his idea a wise one?
B. If his current marginal tax rate is 30% but it is expected to increase to 40% in the next year or two, is his idea a wise one?