Interest

The only interest I believe in paying is mortgage interest.  All other interest is a waste of money.  At least with a mortgage, it’s on an asset that usually appreciates.  Plus, it’s normally tax deductible.

Even though I bought my house when interest rates were low, I re-financed several years later when rates dropped even lower.  When I re-financed, I saved eight years and $50,000 in interest.  My new amortization schedule showed that I was immediately paying more towards principal every month instead of interest.  I’m super excited that my house will be paid off in seven years which is 22 years after my initial purchase.  That’s an $8,950 annual expense that I will no longer have!  Rent has skyrocketed around my area, and I can’t imagine how much rent will cost seven years from now.

I have never made additional payments to principal, and I have no intention of paying it off early.  Since my mortgage rate is so low, I’m making more money keeping funds in the stock market.  For example: if my mortgage costs three percent, but my investments are making eight percent, I’m making a five percent profit.  If I sold enough stock to pay off my mortgage, I would lose five percent!  Of course, this is breaking it down into simple terms, not including the effects of compounding interest.

I was raised to pay cash for vehicles.  Why would I pay interest on something that depreciates?  If the money isn’t available, I don’t need a new vehicle.  I usually keep them 13-15 years.  When they start costing more to repair than they’re worth, it’s time for them to go.

When I purchased my last vehicle, the manufacturer was offering $1,000 off the price if you financed with them.  I planned on paying cash.  So, I asked how much I needed to finance in order to save $1,000.  I financed the minimum amount required for 30 days.  As soon as I received my first payment coupon, I paid off the loan.  I spent $60 in interest which means I saved $940!  Of course, I used some other information to save even more on my vehicle.  I used to be in the auto industry, and the dealership didn’t make much off me.  My sales guy thought it was great that I knew what I did.  His manager was actually pretty angry about it.

I refuse to pay credit card interest.  It’s something I’ve never paid.  I’ve also never paid credit card fees.  Not only is there no asset, but it increases the price of all my expenses where I try so hard to save!  If I only buy something when it’s $1 and refuse to buy it when it costs more, then that’s my right price.  If I didn’t pay off my credit card and paid the 20% interest (or whatever it is), I would end up paying $1.20 for the item.  If I still didn’t pay it off, the interest accumulates, snowballs, and nothing is affordable.  Let’s just say spending $12 on something that was $1 is a very bad deal.

What types of interest do you pay?  Are you trying to get out of debt?

Linda 🙂