 |
Pay off equity line or invest?
12-14-2011, 02:18 PM
|
#1
|
|
Full time employment: Posting here.
Join Date: May 2011
Location: Marco island
Posts: 815
|
Pay off equity line or invest?
Just sold an investment property and the proceeds are approximately that of my only debt, a 300,000 dollar equity line. The cost of carrying the equity line is about 7k in interest and about 3 thousand in required wind and flood insurance. If I paid off the line I would drop the wind and flood as my home is basically worth the lot value. I plan on retiring in 4 years tops. If I don't pay it off now, my plan would be to pay it off when I sell my business, also worth about 300k. I would like to hear some thoughts from this group.
|
|
|
 |
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
|
12-14-2011, 02:29 PM
|
#2
|
|
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
|
If you owned your home free and clear, would you take out a $300K home equity line in order to invest?
Same question, different direction. Either way you have $300K debt and an extra $300K in investments, or you have no debt and you don't have the $300K in extra investments.
The interesting thing is that stating this same question in two different ways often leads people to contradicting decisions.
Just food for thought and another way to look at it.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
|
|
|
|
|
12-14-2011, 04:22 PM
|
#3
|
|
Full time employment: Posting here.
Join Date: May 2011
Location: Marco island
Posts: 815
|
 Quote:
|
Originally Posted by ziggy29
If you owned your home free and clear, would you take out a $300K home equity line in order to invest?
Same question, different direction. Either way you have $300K debt and an extra $300K in investments, or you have no debt and you don't have the $300K in extra investments.
The interesting thing is that stating this same question in two different ways often leads people to contradicting decisions.
Just food for thought and another way to look at it.
|
Great point. I have in the past, which is why I have the equity line in the first place. But I'm getting a little tired of the risk taking on margin. I think it's time to put the gun in the holster. Thanks for the perspective.
|
|
|
|
|
12-14-2011, 06:04 PM
|
#4
|
|
Dryer sheet wannabe
Join Date: Dec 2011
Posts: 10
|
gatordoc, i am right with you about being tired of the risktaking on the margin. i have also got a home equity loan that i use for investments. lately the markets have been so disappointing that i have waffled back and forth on the idea of paying it off and as you say so eloquently, put the gun in the holster. you have given me food for thought.
|
|
|
|
|
12-14-2011, 07:22 PM
|
#5
|
|
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,366
|
I think it depends on your risk appetite and if you invested the 300k whether you would generate a return that exceeds the cost of the equity line. Sounds like the cost is about 3.3% (7 interest + 3 insurance)/300.
If you are confident your investment return will exceed that cost then in theory you should invest. However, for some people the potential gain isn't worth the risk and they sleep much better at night having no debt.
|
|
|
|
12-14-2011, 08:46 PM
|
#6
|
|
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
|
Complicated by the 4 year time limit too. Still, I think my usual portfolio will clear 3.33% across the next 4 years. Probably not in 2012 though.
|
|
|
|
|
12-14-2011, 08:49 PM
|
#7
|
|
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
|
All very valid points. Peace of mind at being debt free on entering ER should be worth something too. Personally, I would retire the debt ASAP.
|
|
|
|
|
12-14-2011, 09:07 PM
|
#8
|
|
Administrator
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,126
|
Quote:
Originally Posted by Meadbh
All very valid points. Peace of mind at being debt free on entering ER should be worth something too. Personally, I would retire the debt ASAP.
|
+1
You have to clear more than 3.3% after tax, so why risk it for a mere 4 years.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
|
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
|
| Thread Tools |
|
|
| Display Modes |
 Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|
