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Rental loan pay off. Lump or Monthly Add?
Old 01-07-2012, 08:17 PM   #1
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Rental loan pay off. Lump or Monthly Add?

I plan to pay of a rental in 5 yrs. Is it better to just add additional funds every month? In this case $1900 extra per mo. Or just bank it and pay it off in a lump sum 5 yrs from now? There are pro's & con's to both. Just looking for your opinion.

Thanks!
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Old 01-07-2012, 08:57 PM   #2
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If you can make more by investing the money than the loan costs you (after taxes), then wait as long as possible. If you need an emergency fund or need a supply of capital for planned or unexpected needs then wait until those needs are met.

If you make less by investing the money than the loan costs you and you don't need the capital for anything else, then pay it off as soon as possible.
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Old 01-07-2012, 08:58 PM   #3
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Using a business calculator or Excel, you could calculate the net present value of both approaches using projected cash flows: the current mortgage payments with a balloon payment at the end, versus the beefed up mortgage payments without a balloon payment. How does the mortgage interest rate compare with what you could get in a CD? If it's higher (accounting for taxes), it makes sense to pay down the mortgage early. Also, if you wait, will you be disciplined enough not to spend the money elsewhere?
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Old 01-07-2012, 09:07 PM   #4
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The loan rate is 4.5%.
I have averaged less than a 4.5% return over the past 10 yrs. on my stock investments... And about that on CD's
Today CD are paying what?
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Old 01-07-2012, 09:28 PM   #5
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Quote:
Originally Posted by almost there View Post
The loan rate is 4.5%.
I have averaged less than a 4.5% return over the past 10 yrs. on my stock investments... And about that on CD's
Today CD are paying what?

PenFed CU is paying 2.25% for 5 yr.

omni
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