Quote:
Originally Posted by Aces4
Am I missing the interest paid portion of the payments factored in this analysis?
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The $6,000 in my example is the principle and interest paid on the bond for the three years.
I'm simply looking at the net profit. I sell the house for $45,000 more than my purchase price, that is my gross profit. Now I need to subtract the cash I put into the house. If I paid off the $30,000 bond then my net profit is $15,000. If I didn't pay off the bond then I made yearly payments of principle and interest which are roughly $2,000. Over the course of three years that would be $6,000 paid out for a net profit of $39,000.
In both cases the home has appreciated enough that you will get more money out than you put in. In one case you have $15,000 more and in the other you have $39,000 more. I'll take option B.
NOW, in my case the payoff on the bond is approximately the same as ten times the annual payment. If I plan to stay in the house over ten years then there will be less out of my pocket if I pay off the bond now than if I make the annual payments - it just adds up to less.
Of course, there is the "on the other hand." On the other hand, my money might earn more in investments than the interest I'm paying on the bond. In that case it would make sense to keep the money invested. This calculation will be different for everyone.