Quote:
Originally Posted by ElDiabloJoe
So, I am curious as to the prevailing conventional wisdom. Is it better to pay off a low interest loan or to invest that cash for growth and pay off the loan monthly? The idea being that while the amount is growing at approximately 7% interest (standard over time, S&P assumption) and the loan is at less interest, when the loan is paid off, there is still some cash growth earnings remaining that would not be there had one paid the loan off in cash up front.
Example:
15 year mortgage at 2.5% (fixed) with a balance of $130,000. If one had the payoff amount in cash is it best to pay it off or set $130,000 aside in a stock market index fund that auto pays the note each month?
Example 2:
Auto loan at 5% (fixed) with a balance of $53,000.
Example 3:
Boat loan at 1.75% (fixed) and a balance of $21,000
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My personal approach has always been pay off the loans 1st. I'm sure I've lost money over time but the peace of mind I gain from not having a loan is worth it to me.
I've even gone so far as to make car payments to myself in advance of buying a car rather than making the payments after the purchase.
As always inflation is slowly chewing away at any cash held.