[XBuford]

Another Aliante guy. I live just south of the Community Park! We love it.

[Atlas1337]

Originally Posted by Danknee

I have a house in Aliante (not Sun City) as well and I pay SIDS only. $400 bi-annually with $7k outstanding on a 5 year old home. Once my house is paid off I am paying off the SIDS. You get penalized 3% (once) for early repayment, but that is better than getting charged 5% every year in interest.

Considering the real inflation rate is somewhere near 10%, not paying off your SID/LID means the real balance is going down 5% a year. I wouldn't pay it off even if there was no penalty.

On Topic: I own a single family home in Aliante and its a wonderful place. I'm renting the house out, but I could see myself living out there some time in the future.

[Danknee]

Originally Posted by Atlas1337

Considering the real inflation rate is somewhere near 10%, not paying off your SID/LID means the real balance is going down 5% a year. I wouldn't pay it off even if there was no penalty.

On Topic: I own a single family home in Aliante and its a wonderful place. I'm renting the house out, but I could see myself living out there some time in the future.

Sure, if you buy into the shadowstats alternate CPI calculation. Also I take it you are investing heavily in foreign currency with your paychecks? The dollar depreciating takes all investments within the country along for the ride. Paying off a 5% interest rate loan means that portion of your assets is now depreciating 5% slower than before you paid it off (again, unless you are making foreign investments).

[Atlas1337]

Originally Posted by Danknee

Sure, if you buy into the shadowstats alternate CPI calculation. Also I take it you are investing heavily in foreign currency with your paychecks? The dollar depreciating takes all investments within the country along for the ride. Paying off a 5% interest rate loan means that portion of your assets is now depreciating 5% slower than before you paid it off (again, unless you are making foreign investments).

Except for my real estate in LV, all my wealth is in foreign stocks and precious metals. I'm not a huge fan of holding any paper currencies.

Dollar-denominated (fixed rate) debt is a good thing at the moment. For example, if you take on a 30 year mortgage at 5-6% today, the stamp on the envelop containing the last payment will be more valuable than the check inside.

I'm not an end-of-the-world conspiracy guy. I'm just someone whose experienced hyper-inflation before -- in Turkey. The lights will still turn on, people will get up in the morning, go to work etc. The only difference will be an extra '0' on our bills

Just to reiterate -- Don't pay off your SIDs/LIDs early. Especially if there's a penalty involved. It doesn't make any sense from any perspective.

[Danknee]

Originally Posted by Atlas1337

Just to reiterate -- Don't pay off your SIDs/LIDs early. Especially if there's a penalty involved. It doesn't make any sense from any perspective.

If you have no foreign holdings and you don't believe the inflation rate is 10% then paying off SIDS/LIDS makes perfect sense.

You are in the right town to gamble by leveraging yourself in mortgages. Hopefully we experience this hyper inflation before you have to pay too much back.

[Atlas1337]

Originally Posted by Danknee

If you have no foreign holdings and you don't believe the inflation rate is 10% then paying off SIDS/LIDS makes perfect sense.

You are in the right town to gamble by leveraging yourself in mortgages. Hopefully we experience this hyper inflation before you have to pay too much back.

The SIDS/LIDS rate is 5%, not 10% so it makes sense not to pay it if inflation is at 5% or higher. There's also something called opportunity cost. Paying it off early means less money to use towards alternatives such as investments.

Now let's throw in the 3% penalty for paying it off early.

With all these factors considered, it makes no sense to pay 'em off early.

[Danknee]

Originally Posted by Atlas1337

The SIDS/LIDS rate is 5%, not 10% so it makes sense not to pay it if inflation is at 5% or higher. There's also something called opportunity cost. Paying it off early means less money to use towards alternatives such as investments.

Now let's throw in the 3% penalty for paying it off early.

With all these factors considered, it makes no sense to pay 'em off early.

It is an annual percentage rate. Taking into account the 3% penalty you save 2% the first year and 5% every year after. You would need an investment that guaranteed more than a 5% return to make it worth not paying off. With small amounts like $7k on its own this isn't likely.

[airics]

to avoid a major penalty (which i assume is a percentage) of the amount due at time of the last payment.. just pay most off on the 2nd last payment, so your last payment is small..

[Robustus]

Originally Posted by Danknee

It is an annual percentage rate. Taking into account the 3% penalty you save 2% the first year and 5% every year after. You would need an investment that guaranteed more than a 5% return to make it worth not paying off. With small amounts like $7k on its own this isn't likely.

Well, with small internet brokerages you can easily put $7k into a fairly diversified portfolio with negligible fees. By your analysis, though, you need to make 5% on such money to be ahead of the pay-off-the-SIDS/LIDS scenario. That's probably not that hard. Either the economy picks up and you make your annualized 5% over the next couple years on an S&P index fund, or it doesn't, probably due to commodity price spikes and associated weird islands of inflation, which, I'd contend, probably exceed 5% (we're including food and energy in this analysis); thus making it better to hold your low fixed-rate debt than pay it off anyway.

It's really the "stagflation" scenario in which paying off low fixed-rate debt early makes sense. That's certainly a very possible outcome for our economy in the medium term, but I think it's still outweighed by the other likely outcomes (genuine growth, non-trivial inflation, etc).

[Tires]

Las Vegas mentality of throwing away zero risk 5% gain to gamble on more gain.