Quote:
Originally Posted by Kenswing
Just curious why you would pay it off now? Not sure what the interest rate on your bond is but ours is, if I remember correctly 3.12%. No way I’m taking money that’s making 5.5% to pay that off.
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When I paid mine off the interest rate I was paying was over 5% and the interest I was making was less than 1% (or negative).
Even today, the decision is not as simple as you make it out to be.
- Bond has been refinanced to an interest rate of about 3.5%
- The admin fee brings the effective interest rate to 4% this year
- Since the admin fee is fixed, the effective interest rate grows each year. (in the last few years of mine it would be 5.5%, 6.3%, and 9%)
- Do you really own those 5.5% CDs or is that just the highest rate you found in a search? The highest rate earlier this year was 4% which at best matches the effective rate of the bond.
- The market is up only about 3% YTD which is less than the interest rate on the bond
At the time I paid off my bond I was losing money on the interest I was paying. Today I might break even. I don't know what the market will do next year but I know the effective interest rate will be higher. Towards the end of my bond payment I would almost certainly be losing again.
Peace of mind has a value. I like knowing my annual bill will be $1,500 less.
Piece of mind also has a value. I was willing to accept a small potential loss to avoid paying the District $100/year admin fee to do nothing more than collect my payments.