Suffice Decisions Still Have A Cost

Good Morning,

Have you ever had a dilemma of what to do with some extra money after you either refinanced some debt or paid off a huge liability? Last week an article in Business Insider made me think about this dilemma because a financial planner was explaining the difference of paying off a mortgage early or investing the savings. Key points from the article are:

  1. Because rates are so low, the homeowners should refinance when possible based on rates being so low
  2. In the case presented investing the refinance savings netted a difference of almost $100K over 15 years
  3. The best decision was to refinance the house (keeping the number of years the same of debt outstanding the same) and invest the savings along with the increase in earnings

This is a great article highlighting why we should be aggressive with lowering interest rates on debt outstanding combined with the time value of money principle. What I liked about this article is that the author indirectly exposed that the difference between an optimal and suffice decision carries an opportunity cost that most of us never consider. 

As a reader, it prompted me to think about all of my liabilities and the interest rates tied to them along with forcing me to consider if I am maximizing my retirement savings.

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