Originally Posted by ElDiabloJoe (Post 2351135)

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

Originally Posted by Topspinmo (Post 2351470)

agree, but don’t cry when get shaft by some financial shyter. Plenty of examples that for sure.

Originally Posted by Maker (Post 2351551)

Also consider your tax return.
What is deductible, and what is not. Will you deduct slightly more than the standard deductible, thereby throwing away free money? Do you have huge medical deductions too?
What investment income will be taxable.

Originally Posted by jimbomaybe (Post 2351284)

This discussion like all such discussion here demonstrate the emotional/ psychological relationship people have with money, some are much more risk sensitive no matter what the numbers and statistics say. I have talked to people who would never think of investing in any form of stock equites , "you can lose money! "never considering the whole universe of risk and that not being so invested is in itself a risk , your money , your comfort level, your decision

Originally Posted by ElDiabloJoe (Post 2351135)

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

Originally Posted by melpetezrinski (Post 2351605)

House and boat loan keep.
Assumptions:
Invest in fixed income earning 5% risk free. If you invest in securities, that would be a much bigger discussion around other assets availalbe in case of a downturn in the markets. Would also need to know your expected tax rate on the capital gains of said investments.

Auto loan pay off.

Originally Posted by DARFAP (Post 2351486)

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).

Originally Posted by ElDiabloJoe (Post 2351608)

Thank you all for the thoughtful replies and responses.

I'm a buy and hold kinda guy who is moderately risk-averse, so my stock market investments and property investments are usually a minimum of a decade long. Even my cars I keep well over 10 years, my last was 17 years. I have exactly zero children so I plan to spend everything I have - just got to make it last at least as long as I do. Therein likes the trick.

As for the tax rate on capital gains, my state of primary residence has zero income tax, and zero taxes on investments and capital gains - so federal tax only.

Originally Posted by Topspinmo (Post 2351589)

“some are much more risk sensitive.”

Cause probably never had to earn it? If giving something and not earned it some have different attitudes. 100 grand lot money for most. And Some it just chicken feed cause somebody got deep pockets to alway bail them out. Few have ever been really hungry with no money, so they have different attitude.

Originally Posted by Topspinmo (Post 2351587)

What investment income will be taxable. ?

Originally Posted by Maker (Post 2351810)

Very simple example. If the interest you pay on the mortgage is $15000, it is more than the standard deductible so it can be deducted.
But the entire mortgage can be paid off at any time, but you put the funds into something very safe (govt backed CD, or something like that) (not stock market) that earns $15000. Have to pay income taxes on that.

So the earned money = deduction for mortgage. Net zero. Sounds good, except for the standard deductible got lost.

Instead... Pay off mortgage. No interest deduction, but no investment income. Net zero? No. You get the standard deduction now. That saves money on taxes.

This concept all shifts as the type of investment changes. Risk it in the stock market, and you could go up or down. That's your decision.

Originally Posted by ElDiabloJoe (Post 2351608)

zero taxes on investments and capital gains - so federal tax only.

Originally Posted by LeRoySmith (Post 2351843)

I assume you mean no state taxes on capital gains, I'd guess there's no way around federal tax on capital gains?

Originally Posted by LeRoySmith (Post 2351843)

just read the timeline in your signature. It seems we are moving together the past 5 or 6 years.

Originally Posted by retiredguy123 (Post 2351819)

As I understand it, you can only benefit from the mortgage deduction for the amount that exceeds the standard deduction. So, if the standard deduction is $15K and your mortgage interest is $15K, your tax savings is zero, unless you have other deductible costs in excess of the standard deduction. Also, note that people over 65 get an additional $3,900 exemption that adds to the standard deduction.