re: Extra $10,000: finish paying off truck or put towards down payment on a house?(Updated)

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But with interest rates so low (3.25% on 30-year; 2.75% on 15-year) and the spreads between the two quite thin (0.5%), it doesn’t make sense to me to lock oneself into a much higher payment for 15-year (56% higher per month for 180 months) and lose flexibility with that extra 56%.

For example, in a $240,000 loan, the 30-year loan at 3.25% is $1044.50 per month while the 15-year loan at 2.75% $1,628.69 per month, a $584.19 per month difference (over $7,000 per year). If they really wants to pay off their home, they can put that difference back towards principal, and less than 9 extra payments (little over $13,000).

Or if they want to invest it all, they’ll have over $230,000 if they invested in an 80/20 portfolio based on historical returns (over 9.8% annually). Even a more conservative 8% will put it at about $198,500.

And since it’s not an either/or, they could put some towards their house to pay if off sooner and some towards investing/saving as well. Or they could spend some on things they enjoy as well.

So the flexibility of the 30-year loan with the current rates and spreads just makes more sense to me.

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