Quote:
Originally Posted by Villages Kahuna
If you do the arithmetic, it’s probably never wise to pay off the bond early.
The municipal bond interest rate on The Villages development bonds is around 5% I think. You certainly couldn’t borrow money to pay off the bond at anything close to the municipal bond rate. Equally certainly, it probably would be easy to earn returns on the investment of the funds needed to pay off the bond before maturity that probably would exceed the bond coupon.
Also as noted above, if you sell your home you won’t enjoy a higher sales price because it is “bond free”. You can list it as a feature of the house, like a view, pool, landscaping, etc., but like any of those features, it’s unlikely that you will benefit in a higher sales price because the bond was paid off.
Unless you simply have a strong resistance to debt, paying off the bond early is probably a bad idea.
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I agree and disagree with the above. The part about being able to easily earn more than the bond rate through investments is misleading. First, you need to earn more than the bond rate, after taxes. Second, and more importantly, in the current market environment, it is not easy to earn more than the bond rate without taking a fair amount of risk. Interest rates are near zero, so forget about earning your target ROR with relatively risk free bonds, which leaves one investing in much more risky (volatile) investments, at a time where the stock market is hovering at it's all time high and a lot of both economic and political uncertainty. Paying off the bond, is a risk free investment with a guaranteed ROR. I agree that you will probably not recover the full cost of paying off the bond if the home is sold.