Pay off the bond or not??
 

I've just moved into a new house in Hadley....the bond is $20,000. I was advised by a friend who has a financial background not to pay off the bond for five years. They felt at that time I would definitely know if I was staying is this house or not and would probably not be able to retreive the $20,000 back if I sold before then. Recently I was at dinner with a friend that stated she was going to pay off her bond so that she wouldn't be wasting her money on the interest each year. I'd love to hear comments from those who have paid their bond and those who have not...
Thanks, Charlee

bought a house build in 2004 in Sept. 2007. Bond started at around $10,200 when house was new. We decided to pay off balance which was around $9400 and did so two weeks ago. We have no plans to move (even though our crystal ball is cloudy) and the bond payment the two years that we paid on it with our taxes was around $820.00 a year. Our money in the bank was making around 2% and the bond was 6-1/2%. We felt this was the right thing for us. I am sure there are plenty of those who probably think this was the wrong thing to do but it felt like the right decision for us.

There is no right or wrong thing to do. It can be argued both ways. Personal preference and don't let anyone tell you you made a mistake.

Link to previous thread on this topic
 

Below is a link to a previous thread on this topic. Hope it will help with your question.

https://www.talkofthevillages.com/fo...ead.php?t=9418

This is not simply a decision based on financial issues .....the other question you need to ask yourself: will be staying in this particular house for XX years...and in my estimation XX should be at least 10 years if not more than 15.

WHY: In todays market you will rarely (never say never but that is what I want to say) recover the cost of prepaying the bond. A Paid Bond may make you house more attractive for potential buyers but you would be amazed how many people buying houses here in The Villages have no idea what a bond is ...they simply look at layout (style), location, and asking price and or negotiated price.

The pros of paying off the bond are: peace of mind having the Bond paid and you get a lower tax bill in November.

The CON is YES you pay more money (over a 30 year period a $20K bond probably costs you $40K) and you have to budget for an additional expense come November. ...but if you sell the home a few years after purchase and prepaid the bond, it will most likely cost you much much more real money already spent.

thanks for all your opinions...just one more question - is the interest on the bond tax deductible or not??? I keep getting different answers on this one.

No, it is not mortgage interest.

Downeaster,

I have to slightly disagree. It is not personal preference - but as Caroline points out, there are better and worse choices for individual situations from a financial point of view.

However, if the thought of debt keeps you up at night, paying it off may be the right choice and here I agree this is personal preference.

Also, you cannot compare interest rate on the bond to what your portfolio is earning. You need to compare the future value of the sum of the bond payments (principal and interest) to the future value of the investments you would liquidate - including compounded earnings. Let's hope 5 years from now we earn more than 2%.

Exactly, Kate, one should consider all aspects that are relevant to ones particular situation and make a decision one is comfortable with. It is a personal preference based on how it effects that person and not how it may effect someone in other circumstances.

There MAY be a way to have the interest, indirectly, tax deductible. Use a home equity loan to pay off the bond. Then, the interest on the home equity loan may be tax-deductible. Also, generally the home equity loans have a lower interest rate than the bond.

That would make the interest tax deductible but you have then effectively paid off the bond as far as TV goes. All the negatives of paying off the bond on resale would still be there.

Even though TV statistics say folk will move here every 5 years or so, my spouse and I NEVER want to go through another move. Because of that, and the desire to be debt-free, we paid off the bond. It may have made more financial sense to just run the bond for as long as possible, but we just wanted the peace of mind.

While people have personal preferences, they may not be the best choice from a financial point of view - though from a mental-health point of view, that's another story...


There MAY be a way to have the interest, indirectly, tax deductible. Use a home equity loan to pay off the bond. Then, the interest on the home equity loan may be tax-deductible. Also, generally the home equity loans have a lower interest rate than the bond.

This is not necessarily true - be sure you talk to a tax professional

Bond versus Bond Maintenance
 

I have not yet finally decided to move to The Villages and have a questions about the difference between bond and bond maintenance. If I understand it correctly, they are two different items. Can someone give me an idea of the amount of mioney for each.

Thank you.