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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There's good debt and bad debt. The three examples you provide I would place in the good (low interest) debt category. Bad debt example would be carrying a large credit card balance and only making minimum payments. In my case, I have a very low interest mortgage and car loan. I also have a second car loan at 0%. I've got the assets available to pay them all off, if need be. However, as long as I'm in the situation, I feel comfortable letting my investments sit and continue to grow (and they are).