MichaelRoss
May 13, 2008, 02:47 PM
Scott,
Thanks for elaborating.
The Idea of Owning your home is usually riddled with Emotion and can be a delicate subject to talk about. Which is why I asked about your Reasoning first.
There are basically three schools of thought...
School of Thought # 1: Rent instead of own - let someone else subsidize your living and Invest the difference. A place with monthly repayments of $2k might only cost $1.5k to rent. Let the landlord subsidize the $500 a month plus maintenance while you Invest the $500 a month into something else.
School of Thought # 2: Pay off your home. Once the major home payment is gone, it is actually quite cheap to live and you need far less income to enjoy the same lifestyle.
School of Thought # 3: Pay Interest Only. The logic behind this one is... a P&I loan has greater repayments than an IO loan. Invest the difference. Plus, why put money In to paying off the Principle when it will only be borrowed back out again at interest for other investing?
A follow on from School of Thought # 3 goes... IF you do want to pay off your home, then don't do it with Today's Dollars, do it with Tomorrows Dollars because they are Cheaper.
Today, a Dollar is a Dollar. But tomorrow, that Dollar may only be worth 80% of its value and as a compensation you will earn more. The loan stays the same, so takes Less of your income to pay off.
A $100k loan is still $100k in five years. BUT, your income should be more. Meaning, in five years it is Financially Easier to pay off your $100k loan than it is today. Because in five years you will be earning more.
Of course, which School of Thought you put yourself into depends on your own circumstances and Financial Targets. If investing is of no interest, then long term paying off the home will be better than renting and give you more piece of mind. If additional investing is of high interest, then there are alternatives to paying off the home so you still have as much Spare money to invest with as possible.
Michael Ross
Thanks for elaborating.
The Idea of Owning your home is usually riddled with Emotion and can be a delicate subject to talk about. Which is why I asked about your Reasoning first.
There are basically three schools of thought...
School of Thought # 1: Rent instead of own - let someone else subsidize your living and Invest the difference. A place with monthly repayments of $2k might only cost $1.5k to rent. Let the landlord subsidize the $500 a month plus maintenance while you Invest the $500 a month into something else.
School of Thought # 2: Pay off your home. Once the major home payment is gone, it is actually quite cheap to live and you need far less income to enjoy the same lifestyle.
School of Thought # 3: Pay Interest Only. The logic behind this one is... a P&I loan has greater repayments than an IO loan. Invest the difference. Plus, why put money In to paying off the Principle when it will only be borrowed back out again at interest for other investing?
A follow on from School of Thought # 3 goes... IF you do want to pay off your home, then don't do it with Today's Dollars, do it with Tomorrows Dollars because they are Cheaper.
Today, a Dollar is a Dollar. But tomorrow, that Dollar may only be worth 80% of its value and as a compensation you will earn more. The loan stays the same, so takes Less of your income to pay off.
A $100k loan is still $100k in five years. BUT, your income should be more. Meaning, in five years it is Financially Easier to pay off your $100k loan than it is today. Because in five years you will be earning more.
Of course, which School of Thought you put yourself into depends on your own circumstances and Financial Targets. If investing is of no interest, then long term paying off the home will be better than renting and give you more piece of mind. If additional investing is of high interest, then there are alternatives to paying off the home so you still have as much Spare money to invest with as possible.
Michael Ross
