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Tuesday, January 2, 2024

To loan or not to loan

Happy New Year!

I thought I'd start this year with an interesting post. I always said that it was better to take a loan vs using your cash. The fear of debt is ridiculous and will financially cripple you. I've got the data to back it up. 


We are going to build on my previous post: Everything you're told about money is wrong - Buying a house

Assuming you've put 3.5% down and in 15 years, you've decided to do $200,000 in renovations. 

Scenario 1 (8% Rate of Return)

If you took the $200,000 out instead of leaving it in your investment, you would have LOST $587,438.72.

If the money was left in the account, you would have $664,135.35 vs $76,696.63 if you took $200,000 out 15 years in.

With LoanWithout Loan
8%$664,135.35$76,696.63

Is it worth it to pay the $103,788.46 in interest for the renovation to have an additional $587,438.72?

Scenario 2 (10% Rate of Return)

If you took the $200,000 out instead of leaving it in your investment, you would have LOST $759,499.66.

If the money was left in the account, you would have $1,151,660.55 vs $392,160.89 if you took $200,000 out 15 years in.

With LoanWithout Loan
10%$1,151,660.55$392,160.89

Is it worth it to pay the $103,788.46 in interest for the renovation to have an additional $759,499.66?

Scenario 3 (12% Rate of Return)

If you took the $200,000 out instead of leaving it in your investment, you would have LOST $977,422.46.

If the money was left in the account, you would have $1,977,354.86 vs $999,932.40 if you took $200,000 out 15 years in.

With LoanWithout Loan
12%$1,977,354.86$999,932.40

Is it worth it to pay the $103,788.46 in interest for the renovation to have an additional $977,422.46?

Conclusion

Is it worth paying the interest? You tell me.


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