> rate was so low that I had no reason
What was the rate though? If it was > 0, you lost money not accelerating the payoff.
What was the rate though? If it was > 0, you lost money not accelerating the payoff.
The rate on our loan is something like 1.6% (shortly after it was literally 0%). If I can find an investment for more than 1.6%, I'm technically coming out better. Loan fees make the math fuzzier, but I'm simply demonstrating for this conversation.
For example, if I can make 4% on an investment and a loan is 1.6%, that means I can still make 2.4% net interest if take the loan and use the cash to invest.
The math gets even more favorable when you consider inflation. $1 in 5 years is actually cheaper to me than $1 right now.
-You have an investment that you can reliably withdraw the funds from.
-There isn't risk to losing principal with the investment.
-The investment outpaces inflation + interest. If inflation is 3% in your example you just lost .6%.
99% of the time these things aren't true for the 5-7 years of a loan.
Willing to be wrong on that, just having a hard time understanding.
Inflation means that $1 is fundamentally less valuable in the future than it is right now. If we're making a deal for me to pay $1 in the future, I'd prefer to make that $1 payment as far out as possible.
Not if they could put that money somewhere else with higher expected returns than the interest rate.