Deciding whether to pay off a home loan

[saucyjack111]

Hello, I have a $155K 20-year home loan that I have the opportunity to pay off now. It is a low interest rate, though (2.75%) and I am pretty far into the loan, so about 75% of each loan payment goes to principal.

The simple analysis says that if I pay this off, that's like getting a 2.75% return on the money. But does it matter what share of the payment is principal vs. interest? It would seem that it'd be more beneficial to pay it off earlier in the loan, when more the of payment is interest. Or does that make any difference in the analysis?

Thanks for any advice.

[disneysteve]

The absolute savings (actual dollar amount) is the same no matter when you repay it. The percentage savings remains at 2.75% though. So you save more money by repaying early but you save 2.75% no matter what.

The question is if you feel you can earn more than 2.75% (actually less than that when you factor in the tax deduction) investing the money elsewhere. Most likely, you can do better elsewhere.

[bjl584]

You can most likely beat out the 2.75% rate by investing the money elsewhere as opposed to paying off the house. But, what are your thoughts on carrying debt? Would it bother you to have that debt sitting out there for the next however many years? Would being debt free give you better peace of mind? Do you have any major expenses on the horizon that would be easier to swallow if you owned your home outright? You need to sit down and ask yourself these questions.

[grumpter]

20 yr @ 2.75%

Don't pay a dime of that money off early.