Quote:
Originally Posted by biker1
I will construct a simple example, where I will ignore the future value of money. A house with a $23K bond will cost about $1600/year. After 10 years you will have paid $16K and still have a bond balance of $19K. At that time if you wish to sell the house I would suspect you can ask for a price premium of more than $7K (the difference between what you paid in bond payments and what it would have cost you to pay off the bond initially). Factoring in the future value of money will change the equation but I hope you see the point.
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I completely understand the math of what you are saying, biker1, but I remain of the opinion that the issue of the bond is nuanced.......
Unlike the cut-and-dried, take-it-or-leave-it, new build market, every pre-owned comes with its own story.......
If a buyer is pretty sure they will stay in the home forever, or at least long enough to recoup the return-on-investment of paying off the bond, that can work out very well.
There are others for whom paying off the bond is simply the cost of sleep because they do not want to owe anything on their house or to pay interest on a house expense that has no tax advantage. I get that.
Then there might be some who see ROI in a different way. Maybe those people are dividend investors who might own stocks that pay a relatively decent dividend. Such stocks might even be on that list known as "The Dividend Aristocrats" which means not only do those stocks pay a dividend but those companies have increased that dividend payout for at least 25 years running, thus often increasing the yield on the original investment.
And there might be some who like to put money in stocks so that they can maybe capture a gain when it is most beneficial to their individual need or want for ROI.
And then there are the bird-in-the-hand people who simply prefer to hold on to the money to spend for other things rather than tying it up in one big amount for the bond pay-off.
Well.......as much fun as I am having thinking up scenarios that create the nuances in individual decisions about whether to pay off the bond or not, I really need to get outa here.......
biker1, I think we are both right.
