I'm frustrated by not being able to figure out why an equal amount invested in a bond portfolio matching the amount of a mortgage doesn't produce equal cash flows to cover a mortgage payment.
If, as example I have a 2.75% $300,000 mortgage due in 30yrs and opportunity to invest in US Tres 30 yr. with a 4.25 coupon and a YTM = 4.453.
The approximate cash look like this :
Mortgage monthly payments: $ 1,180. Annual $1,180 x 12 = $ 14,160
Bond: 300,000 X 4.24 = $8,250 annual income
I recognize that there are other factors (taxes, reinvestment, etc.) that would marginally change this basic calculation, but I can't understand why a bond yielding 150bp higher than the mortgage rate doesn't match up on cash flows.
What am I missing?
If, as example I have a 2.75% $300,000 mortgage due in 30yrs and opportunity to invest in US Tres 30 yr. with a 4.25 coupon and a YTM = 4.453.
The approximate cash look like this :
Mortgage monthly payments: $ 1,180. Annual $1,180 x 12 = $ 14,160
Bond: 300,000 X 4.24 = $8,250 annual income
I recognize that there are other factors (taxes, reinvestment, etc.) that would marginally change this basic calculation, but I can't understand why a bond yielding 150bp higher than the mortgage rate doesn't match up on cash flows.
What am I missing?
Statistics: Posted by DBH76 — Thu Mar 21, 2024 9:26 am — Replies 5 — Views 118