Quote:
Originally Posted by somaziro  mortgage over 30 years I would pay 141k in interest
6.7 loan over 30 years I would pay 49k in interest
2.7 loan over 30 years I would pay 8k in interest...
so over 30 years I pay about 200k in interest
mortgage over 15 years I pay 63k
6.7 loan over 7 years I pay 9700
2.7 loan over 10 years I pay 2600
so with extra payments I end up paying around 73k
total savings on interest of paying early would be around 125k.
is this what you are getting at? |
not exactly. what i am trying to say is the money you pay in interest is not as relevant as you might think.
Before i go into this, i want to restate, that i don’t like debt and i think people should strive to be debt free. When i am talking about this, i am dealing with numbers only. I honestly, (with the exception of a house) will always be out of debt. This being said, we are talking about extremes here (either pay it all off as fast as you can, or only pay the bare min). Personally, i would find a happy medium but i would focus more on investments then on debt because i will come out ahead in the end.
Now.. I wrote an article on my blog that explains this and has lots of numbers and everything and i don’t have enough time to crunch more numbers etc right now, so i am just going to quote myself. The full article can be found
here. Quote:
Lets play with numbers.
Let’s pretend that I am going to buy a house. I am going to take out a loan for 200K. At the time of this writing, you can deduct interest on loans up to a million dollars loans on your taxes in the United States.
200K paid over 30 years at 6.0 % interest:
I pay 1199.10 per month
I pay 231,676.38 in interest over 30 years
Lets say now, I am making my house payment no sweat and I decide to make double house payments.
I pay 2398.20 per month
I pay 59,428.74 in interest over 9 years and 1 month.
After those 9 years I stop getting a tax ride off as well.
Now let’s say instead of putting that money into paying off the house, I instead invest it. Now personally, on average I earn about 18-20 percent a year on my investments, but I know the rule is 10 %. So for the sake of this, let’s say you get 10 % interest per year on the money you invest.
If I put 1199.10 a month into investments after 30 years, I will have 1,861,877.97 (factored in 25 percent tax per year). That’s a lot 
Now, if I paid off the house instead then put double into investments. After I paid off the mortgage, it would look like this:
If I pay 2398.20 a month into investments for 21 years I will have 1,601,720.39 (factored in 25 percent tax per year).
That is a 260,157.85 dollar difference.
This is what it boils down to:
In 30 years, I end up at the same place with the house paid off and investments. I paid out the same amount. Each month 2398.20 was either invested and/or used to pay off the loan. Even tho I paid a lot more in interest to the bank, the extra investment interest more then made up for it. On top of this I have all the money I saved in taxes because I tax deduct the interest over 30 years not just 9.
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Does that make sense? At the end of the example above, you have paid out the same out amount of money but have very different results. What you pay in interest is not relevant because you are paying out the same amount in either scenario.
The difference is in one you pay more in interest then in the other, however, you make more because that is at a lower interest rate then what the stock market or other investments return.
Is that clear? I feel like the water is a little muddy. I am not sure i am explaining this as well as i would like.
Adrienne
