The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: rothwem on February 04, 2016, 10:57:13 AM
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Hey everyone! This is my first post, and I cannot honestly say that I'm a mustachian yet. I'm working my way towards it, but I'm not there yet.
I live in a Duplex that I own both sides of. I love it, it allows me to live in a nice neighborhood for about $300/month in mortgage/insurance/interest costs. Its an older place though, and the neighborhood is improving. Seeing that my house was one of the uglier houses on the block, I decided to do some improvements to see if I can get more rental income with the next tenants. I replaced the roof, renovated a bathroom, and upgraded the HVAC to ducted units (from window units).
The HVAC was done by a contractor, and due to the unusual layout of the home, it cost more than I expected it to. The installer said, "no worries, we've got 12 months/0% financing, take a year to pay it off" I said, "Awesome! Proceed with the work!". (OBVIOUSLY not a mustachian yet...) During the installation, the sales guy came by with the papers to sign, and I got a look at the loan documents. The loan is a bit of a clusterfuck, and I wouldn't have signed it except for the fact that they'd already cut holes in my floor and run half the ducting. Here are the terms:
Principle: $12400
Rate: 17.99 <--- NOT 0%
Term: 48 months
If I pay it off before 12 months goes by, I get a refund of all of the interest I've paid. Basically, I've got until October to pay it off, or I can continue paying for the remainder of the loan term at 17.99%.
I've got the savings to cover it, and also a giant tax return coming (due to depreciating all that capex). Should I pay it off now, or wait till October? The opportunity cost of waiting (around $1900 in interest tied up for 9 months) doesn't seem that high.
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I would just pay it. This is the kind of thing that is not worth the risk to me of something slipping through the cracks, or confusion about the dates, or whatever, and then you owing all that interest.
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So long as you will still have cushion enough in your savings to provide for a minor setback, I would say pay it now and get it off your back. 18% is a huge weight and not one to mess around with, in my opinion.
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Yep, just pay it. With these type of loans they don't go out of their way to remind you that 12 months is about up. Way too easy to forget and missing the one year deadline.
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They're obviously hoping you don't pay it off in 12 months. Sounds scammy, kinda like "teaser rates" for overpriced houses in 2007. Please don't recommend their services to your friends. ;-)
If you don't have the immediate funds, just pay it off in the highest increments you can afford.