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Pay off now or wait?
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THE SCENARIO
A friend of mine, call him Sean, has a loan that he's paying on right now. He currently owes $86,997.94, and has 116 more payments to make on the loan. Each of those payments is $1,100.00*.
The question: If Sean comes up with the money to pay off the loan today, what's his return on his $87K?
* This is a bit of a simplification - the loan is actually adjustable, and this is the estimated average payment for the remaining life of the loan.
THE SOLUTION
First things first, make sure the calculator is using 12 Payments per Year.
N: 116 (Sean has 116 more payments to make on the loan)
I/YR: (This is what I'm trying to find)
PV: -86,997.94 (This is the amount Sean would have to pay today to pay off the loan)
PMT: 1,100 (Paying off the loan would save Sean $1,100 per month)
FV: 0
If Sean pays off the loan today, he'd make a return of 8.45% on his $86,997.94.
What do you think? If Sean could come up with the money, should he pay off the loan? If so, why? If not, why not? Let us know in the comments!
