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There is the "debt is bad" viewpoint, where paying your loan earlier is seen as a good thing, which is a valid way to look at it, depending on your values. How
by abenga 2y ago
There is the "debt is bad" viewpoint, where paying your loan earlier is seen as a good thing, which is a valid way to look at it, depending on your values.
However, what you described can also be done this way: invest the extra payment amount elsewhere and get interest/capital gains on it, which gives you the lower effective interest rate and the extra liquidity as well. Or in other words, the figures on the spreadsheet need to reflect the opportunity cost of the extra payment, or the lower total interest paid is a misleading mirage.
- ChicagoDave 2y agoThere are definitely levels of sophistication in managing interest liabilities. If you have a mortgage at 3%, paying the principal early is wasting your extra monty. As you said, you can invest the extra and make 7% (hypothetical) and clearly that’s advantageous. My example is for people struggling with credit cards and high interest loans that don’t have investment properties.