I'm entering into the latter half of my twenties, and I'm now faced with a question I've seen a few times before on this site: should I pay off my student loans or use the money as a down payment for a house?
The reason I'm asking instead of using the answers to those questions is that none of those questions have directly looked into the "opportunity cost" (caused by mortgage rate changes) of not purchasing a home. My student loans are on the order of 20K @ 5.5%. I already overpay them each month. I'm looking into purchasing a house around 200K - 300K. Paying my loans off early would save me a few thousand dollars over the loan's lifetime (8-10 years). However, even a minor fluctuation in interest rates would cause the "cost" of a home to go up tens of thousand of dollars or more over its lifetime. Assume I have enough cash currently to either make a 20% down payment on a home or pay off my student loans.
To me this seems like a simple decision (buy the house while interest rates are low, saving more money in the long run), but it seems to fly in the face of the nearly-ubiquitous advice of "get rid of debt first", so I'm wondering if I'm missing anything.
I've heard it said many times that you shouldn't view your home as a money-generating asset, but for the purposes of this question I am looking at purely the financial considerations.
Financial assumptions I have that may be wrong:
- Freeing up the "cash flow" of not having a student loan payment each month would make owning a home easier (there are a lot of "hidden costs")
- When interest rates rise, so will the interest rate of other investments (thus decreasing the "opportunity cost" of not buying a house with low rates)
- Purchasing a home with less than a 20% down payment (incurring PMI) is such a bad financial decision it is not even on the table
- I understand that interest rates aren't guaranteed to go up or down, but given the historical lows they are currently experiencing, I personally expect them to rise over the next few years.