If you make an extra $50.00 principal payment per month, what are the opportunity cost considerations? I am looking into a prepayment vereses investment loan

This is hardly economic analysis. The idea is to have a home in hard times, when you are out of work, or disabled. You do that by paying off the morgage. That increases your security and net worth.

Investment loans increase your debt, and risk. If the investment goes sour, you lose the ïnvestment"and still owe the loan.

It is hard for me to conceive the economic choices here. I suspect someone is wanting to make money off of you, not for you.

I agree with Bob Pursley. My thesis in life has been (and is) to become debt free as soon as possible and that is by operating, as much as possible, on a cash basis. If the opportunity presented itself I always made prepayments. The sooner that mortgage is gone the sooner the principal AND INTEREST is free to spend other places.

To determine the opportunity cost considerations of making an extra $50.00 principal payment per month versus investing that money, you will need to consider several factors:

1. Interest Rate on the Loan: Start by finding out the interest rate on your loan. This will help you understand the potential savings you can achieve by making extra principal payments.

2. Loan Term: Take into account the remaining length of your loan term. If you are nearing the end of your loan term, the impact of making extra principal payments may be less significant compared to the early stages of the loan.

3. Investment Return: Analyze the potential return on investment you could earn by investing the $50.00 each month instead. Consider various investment options, such as stocks, bonds, or a high-yield savings account, and estimate the average return you might earn over the same time period as your loan.

4. Tax Implications: Determine whether there are any tax advantages or benefits associated with either the loan or the investment. For instance, if your loan interest is tax-deductible, it may reduce the actual cost of borrowing.

Once you have gathered this information, you can compare the potential savings gained from making extra principal payments on the loan versus the potential growth of investments. Consider the following:

- Immediate Interest Savings: Calculate the reduction in overall interest payments over the remaining loan term if you were to make the extra principal payments. This can be a significant factor in favor of prepaying the loan.

- Net Investment Return: Estimate the potential return on investment by investing the additional $50.00 each month. Keep in mind that investment returns are not guaranteed and may vary based on market conditions and the chosen investment strategy.

- Risk Tolerance: Assess your risk tolerance and financial goals. If you are risk-averse, paying off the loan and saving on interest charges may be more attractive. On the other hand, if you have a higher risk tolerance and are confident in your investment choices, you may consider investing the extra money for potentially higher returns.

Ultimately, the opportunity cost depends on your individual circumstances, financial goals, and preferences. It is important to carefully evaluate the potential benefits and drawbacks of each approach before making a decision.