Always the lump sum, for the reasons Bell206 just said. You'll outperform the annuity easily if you're smart with it and can diversify immediately/set up additional passive income streams which will far outweigh the annuity.
That’s really helpful, thanks. I didn’t realize it was applied for the following month which obviously affects the benefit of early payment.
Some lenders do this automatically, some do it if you request it, and some make it extremely difficult. Before assuming that any extra payment goes to principal rather than just future payments (and you DEFINITELY want it going to principal!), take a good close look at your payment documentation ...coupon, webform, whatever.. and make sure it states where extra payment goes, or that there's a box for you to indicate that any additional payment should go to principal. Mortgage holders are generally pretty good about this. Auto loan corportations, especially Toyota Finance Corp, are so bad about this it borders on criminality. A few years ago Toyota offered me a 0.9% loan on a car which I accepted rather than use money that was earning much more than that. I specifically asked the loan officer if I could send additional to principal monthly and he replied that yes, any additional money would to go principal. 5 months later (my wife does the actual check-writing/physical bill paying), my wife shows me a statement from Toyota saying we didn't have to send in a payment because we were paid up for the entire year...they had been applying the payments to future payments, including future interest we hadn't even incurred yet. I called them, and was told that if we wanted to pay additional to principal, we needed to send a SECOND different check each month to a different address, and the only way to find that out was to call them. I was incredulous, and mad them repeat that. They confirmed it...that procedure is not listed anywhere, they were aware of that, and confirmed that it was intentional on their part. I paid off the entire loan immediately.
Good to know. The contract I had applied extra to future payments at the end of the loan, which was a bad deal for me and soured me on the practice. I haven’t had a mortgage since but have been considering it with the current rates.
So it’s a good time to invest in bitcoin?
Ayn Rand told us it would happen.
It's the first question I ask if I am financing something, can I pay it off? The last couple cars I've bought have had 0.9% or less rate, they all allowed me to pay early, but in the end I just used their money. One car, the Acura I believe, gave a $1,500 rebate to take the 0.9% financing. Still can't figure that one out.
Oh, and just to stir the pot a bit... how about the lottery as a retirement plan? Do you take the lump-sum or the annuity if you win the Megapowermillions?
Lump sum. I threw this question out at one of my last pre-retire meetings with my cpa, attorney, wealth guy. We all laughed then they looked at each other and in 30 minutes showed me what to do with that lump sum. Even at a modest investment level the lump sum would out perform the annuity option laying down. But I think they saw money on their side as they collectively stated if it were to happen they would convert their fees from a flat rate to a percentage.
We've been meaning to remodel our kitchen for several years. Next year might be the year we get started. I talked with a contractor who said he considers the ages of his clients when he does kitchen remodels. I may be good now, but in a few more years I might really appreciate a different height on the counter tops, or oven, or whatever.
FWIW: In trying to work out what I wanted to do after retiring I realized my last abode would need some upgrades. Unfortunately the neighborhood was in flux and I didn't have the option to expand my shop. After looking for existing setups, I elected to build a new "retirement" house with big shop. Also had all the ADA type structural requirements built into the walls so any grab bars, etc could be installed at later dates. No second floor or other mobility type restrictive designs were used and moved walls where needed to ensure there was a "flow" through out the house. Also included a large game room and designed my shop to handle my perceived future hobbies and projects.
Their main goal was to create an entity to manage the lottery asset and a tax plan for each person I would want to have access to this money and it's succession. The entity was to be a named trust of some sort, like a revocable trust. They explained several. From there they wanted a list of potential members or beneficiaries who would profit from said winnings. But being the greedy bast**d I am, I declared myself the sole trustee and beneficiary--everybody could fight over it when I dead.
and by the way, you might even be able to have your attorney collect the prize for the trust to keep your name out of the vultures' hands.
Renting a 2 BR apartment around here can be as expensive as a mortgage payment on a 2200 Sq. Ft. house. At least the house builds equity.
Ha. That actually came up in discussion. But my shyster wanted to claim a 10% premium to go in front of the media. My accountant under cut him at 5% to be the trustee. But my buddy the wealth guy offered to do it for a case of beer since he would be making millions off his fees for years to come.
