To pay off this loan sooner or just make minimum payments?

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To pay off this loan sooner or just make minimum payments?

Jon Gorman
Member since 2019 · 24 posts · 5 votes

Hello,

I have a commercial investment property that I bought in 2016. At the time I got a 5-year commercial loan amortized over 20 years, the idea was that every 5 years I would reapply for/refinance the balance at whatever is the going interest rate.

So, in 2021 when it was time to refinance (5 years passed), I was able to get a 10-year loan amortized over 15 years.

Current rate is 4%, maturity date is 9/31, current outstanding balance is 220,742. Current P&I payment is ~$2315/month.

If I wanted to, I could pay an additional ~1100/month and pay off the whole balance by 9/2031. This would save me thousands in interest + not having to pay the closing fees to refinance in 2031. Plus I'm locking in paying down an interest rate of only 4% as opposed to the uncertainty of what interest rates will be in 2031. Or, do you think it would be better to just make the minimum payments, save the extra cashflow to invest in other ways, and just pay the extra interest, closing costs, and likely higher interest rate in 2031? Or split the difference?

Thanks for any suggestions!

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  • Mohammed Rahman
    Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes
    1y

    Got it — you’ve basically got two options: accelerate payoff now vs. keep cash liquid and refinance later. Here’s the way to think about it.

    Paying the extra $1,100/month guarantees you a 4% “return” (since you’re avoiding paying that interest), plus you’d knock out the loan by maturity without a refi. That’s safe, predictable, and takes interest-rate risk off the table. 

    On the other hand, 4% is relatively cheap debt. If you can reasonably invest that extra $1,100/month into something earning higher than 4–6% after-tax (stocks, another property, your business), you’d come out ahead financially. The trade-off is you’d carry the refi risk in 2031 (interest rates could be much higher, and you’d pay closing costs again).

    So it comes down to your goals. If peace of mind, debt-free ownership, and guaranteed savings sound better — throw the extra at the loan. If you value flexibility, liquidity, and are confident you can get better returns elsewhere — keep paying minimums and invest the spread. 

    Splitting the difference is a perfectly valid middle ground too: maybe add a few hundred extra each month, build equity faster, but still keep cash free for opportunities.

    2Reply
    • Don Pacheco
      Member since 2025 · 2 posts · 4 votes
      10mo
      Quote from @Mohammed Rahman:

      Got it — you’ve basically got two options: accelerate payoff now vs. keep cash liquid and refinance later. Here’s the way to think about it.

      Paying the extra $1,100/month guarantees you a 4% “return” (since you’re avoiding paying that interest), plus you’d knock out the loan by maturity without a refi. That’s safe, predictable, and takes interest-rate risk off the table. 

      On the other hand, 4% is relatively cheap debt. If you can reasonably invest that extra $1,100/month into something earning higher than 4–6% after-tax (stocks, another property, your business), you’d come out ahead financially. The trade-off is you’d carry the refi risk in 2031 (interest rates could be much higher, and you’d pay closing costs again).

      So it comes down to your goals. If peace of mind, debt-free ownership, and guaranteed savings sound better — throw the extra at the loan. If you value flexibility, liquidity, and are confident you can get better returns elsewhere — keep paying minimums and invest the spread. 

      Splitting the difference is a perfectly valid middle ground too: maybe add a few hundred extra each month, build equity faster, but still keep cash free for opportunities.


      Considering that interest is a tax deductible expense, net "return" would even be less than 4%.
      0Reply
  • Jon Gorman
    OP
    Member since 2019 · 24 posts · 5 votes
    1y

    Thanks for your reply! Helpful!

    0Reply
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