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You've got a relative break-even if you invest the $100K at 6%, as you'll be paying tax on that interest income and deducting the 6% interest on the extra $100K borrowed. Interest rates to be earned on savings is going down with the recent rate drops, too, so you'll be likely to be paying a spread on what you earn vs what you pay. If you had an investment that's likely to return more than 6%, then there's a utility value there, in addition to having the $100K reserves.
Right now I'm seeing about an 0.625% difference between 30 and 15 year conforming rates. If you borrow $275K at 5.375% instead of 6%, the payment would be $2,229/mo. The total interest would be $126K vs $319K. You'd have the combined factors of faster payoff and lower rate working for you. The total interest for 15 years at 6% would be $143K.
How old will you be in 15 years vs 30 years? That payment going away at that time could be really nice.
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Last edited by Steve Carlton; 01-31-2008 at 11:04 AM..
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