Quote:
Originally Posted by DaKCMan AP
Paying off a loan early is a risk free return on the interest rate.
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A friend of mine is considering buying a house. He's got enough money to pay cash for it, but he's considering getting a loan because he thinks he can earn more money investing the cash than he'll pay in interest on the loan.
I completely understand his logic, and with interest rates so low it seems like this is an environment where that's quite possible. But I still don't like it. I hate paying interest to anybody, and the investment returns aren't guaranteed while the mortgage costs are.
This guy's pretty savvy so I suspect he'll do fine. And he's affluent enough that it won't really change his lifestyle even if the investing tanks. But psychologically I wouldn't do it. I'd rather get a lower return at lower risk.
The one thing that I might think about, though, would be something that's really low risk like an annuity. If I could put $X in an annuity at a 3.5 percent return and then get a mortgage for that same amount at 2.7 percent, then I guess I'd do it. But I'd still feel weird about it. I really like being debt free.