Quote:
Originally Posted by ElDiabloJoe
This is an interesting thought process. I would appreciate it if you were able to 'splain it as if I were a 5 year old. Are you saying your annual payments would take 12 years to add up to the bond amount if you had paid it in cash at the start (i.e.- without paying interest in the annual payments) - a kind of break even point?
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Yes, sorry I didn't word it better.
As an example, let's say my yearly payment was $1,500 and right now my balance is $18,000.
- If I pay $18,000 today then I have no more yearly payments going forward.
- If I continue to pay $1,500/year then in 12 years I will have paid the same $18,000 but I can see from the amortization schedule that I would still have a balance of $10,000.
If I'm going to stay in this house for at least 12 years then I would save money by paying it off. If I leave earlier then I put money on the bond that I would otherwise pass to the next buyer. I'm betting I'll be here the full 12 years.
This doesn't factor in investment income. It might be argued that I would make more than $10,000 by leaving the money in the market. In my case, the money was in a bank account and the market tanked a few month after I paid the bond. Someone else may choose to do the math to show me that I still lost money but I feel comfortable with the choice I made.