Loan Payback (and ETFs)

This Blog Post was originally published on adagia.org.

So as I've written in the previous post, I've got a bunch of money I owe the bank. When I calculated the rates and everything for myself I was thinking about paying 200€ a month on top of the monthly rate I pay for the loan.

Then I posted my income and expenses to Reddit's r/Finanzen (the german pendant to r/finance) and got a few interesting replies. (You can find the full, german, thread here: https://www.reddit.com/r/Finanzen/comments/p60kox/m26_single_eigentumswohnung_fremdfinanziert/)

One of the people suggested renting another apartment and rent out the apartment I'm living in. Although I commented that I could move into my parents home again, why would I rent it out?
Sure it would be cheaper, but I put a bunch of effort into the Apartment and I like the neighbourhood. So that's a no go for me.

Another one suggested instead of putting 200€ extra into the loan, I could invest in ETFs (exchange-traded funds) and sell them every few years. Because of the low-interest rate on the loan, the interest rate of the ETFs would easily outnumber them.

As always with financial stuff, I did way too many Excel calculations. But the suggestion made sense. I talked with coworkers and friends about the idea and let them proof my calculations.

Well, fast forward a few days I've got a savings plan set up for three ETFs (A113FM, A2PKXG, A1JX52). I put 80€ a month into each (so 40€ more than I would have put into the loan). Looking at the performances of each and calculating carefully they should outnumber the interest rate easily of the loan.

Of course, the could drop to 0 anytime, just like the loan interest rate could spike up anytime. But all of them performed really well the recent years.

So my new plan is to pay 240€ a month into them for at least three years. After that, I will decide if I liquidate all of them and repay part of the loan, or only take out my original investment (8640€) to repay part of the loan and keep the rest so it can compound even further.

Ignoring the interest on the ETFs I will repay the loan only a little bit faster, but if I build up interest on them I'm going to build a good financial buffer for later on.

The other benefit is, I can always access the ETFs easily and could liquidate them anytime if I would need money quickly. If I pay the 200€ per month directly to the loan, they're gone.