Author Topic: $30K to Play With - Whats the Best Course of Action?  (Read 2226 times)

Bales9er

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$30K to Play With - Whats the Best Course of Action?
« on: March 29, 2017, 09:56:00 AM »
I will preface this post by fully admitting that this is not a Mustachian approved situation but regardless, it is the situation I'm looking for some help with to try and be more Mustachian. Here's the scenario:

Currently building our forever house and will be getting a gift of equity from the builder (family member) that will cover the PMI. We also have a car loan with a $27K balance ($550/mo, 2.84% interest rate). Lastly, between my wife and I we have about $80K worth of student loans.

The dilemma is whether we should A) use the $30K as an additional down payment on the house (with current rates it would save ~$150/mo in the payment) or  B) Pay off the car loan, use leftover money to start paying down the highest interest rate student loans first while snowballing the payments using the money from the now paid off car (ie: Take the $550/mo and pay extra on the highest interest rate loan until its paid off, then use that monthly payment in addition to the $550 and pay the next one, and so on...)

I put together a spreadsheet and based on my calculations, if we pay off the car loan then use that payment towards student loans, we could have them all paid off in 5.5 years (as opposed to dragging them out full term between 10-15 years depending on the loan). This seems like the no brainer situation as opposed to saving the $150/mo on the mortgage as an extra down payment but I wanted to get some "expert" opinions.

JoJo

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #1 on: March 30, 2017, 12:05:13 PM »
What are the interest rates on the student loans?

The simple math on the PMI = $150 x 12 = 1800 per year saved which is 6% of 30,000.  I forget, is PMI tax deductible?  That should also impact the decision.   You would also save on the interest paid each month on the mortgage since your balance would start at at 30,000 less. 

frugaliknowit

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #2 on: March 30, 2017, 01:40:44 PM »
What do you mean by "cover the PMI"?  Do you mean he adds to the downpayment so you don't need PMI or he pays the upfront fee?

We need the interest rates and amounts on everything to help you.  We need the appraised value of the house as well.

Mr Mark

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #3 on: March 30, 2017, 02:16:07 PM »
27k outstanding on car loans? Sell the car's and get a small sensible car and uber.

Vindicated

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #4 on: March 30, 2017, 02:35:37 PM »
The most simple answer is to put the $30k towards the highest interest debt.  I'll guess your mortgage rate will be ~4%.  So, if you have student loans greater than 4%, pay those off first.  If you pay all student loans off greater than 4% and have some left over, add it to down payment of the house.

Either way, if you're not upside down on the car, get rid of it.  Maybe even use $6k cash to buy a Honda/Toyota used.

Quick example:
Current Car = $27,000
Used Honda/Toyota = $6,000

$21k difference over 4 years ($429/mo).

Invest that $429/mo to the tune of $24.5k at the end of four years, if the market averages 7%.

At the end of 4 years you could have the car you have now, and $0.  Or a used Civic & $24.5k.

Of course, I don't know how upside down you are, so this may not work out so well.  Cars are awful.

Bales9er

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #5 on: March 31, 2017, 07:01:40 AM »
What do you mean by "cover the PMI"?  Do you mean he adds to the downpayment so you don't need PMI or he pays the upfront fee?

We need the interest rates and amounts on everything to help you.  We need the appraised value of the house as well.

We will be receiving a Gift of Equity that is recognized by the banks as a down payment. So for example the house will be worth about $450K when all is said and done but we will be buying it for $340K. However, the paperwork will still show the purchase price as $450K so we will only be mortgaging about 75% of the home value, therefore avoiding the PMI regardless of whether or not we put down that extra $30K. So at ~4% interest rate, that extra $30K as a down payment will only save about $150/mo and if I calculated properly, $23K in interest over the entire 30 years.

Student Loans as Follows:

$4K - 5.75%
$7K - 5.75%
$7K - 9.75%
$2.5K - 2.65%
$1.5K - 6.80%
$2.9K - 2.65%
$4.9K - 6.8%
$13K - 3.25%
$18K - 3.25%
$9.2K - 3.50%
$3.2K - 3.50%

Vindicated

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #6 on: March 31, 2017, 07:25:05 AM »
Student Loans as Follows:

$4K - 5.75%
$7K - 5.75%

$7K - 9.75%
$2.5K - 2.65%
$1.5K - 6.80%
$2.9K - 2.65%
$4.9K - 6.8%
$13K - 3.25%
$18K - 3.25%
$9.2K - 3.50%
$3.2K - 3.50%

I would pay off these, then put the remaining $5k towards swapping your car for something cheaper.

frugaliknowit

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #7 on: March 31, 2017, 07:36:10 AM »
1.  Take the 30K in cash from devloper (this is technically mortgage fraud, I believe...).
2.  Dump the car, replace it with one for cash (like a 7 year old Civic or something similar...).
3.  Avalanche the SLs (highest interest rates first...) with the rest.

I hope you guys have are high income...

Easye418

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #8 on: March 31, 2017, 11:50:20 AM »
I am not entirely MMM so no argument.

But I am really interested that this is your "forever" home yet you still have $80K in Student Loans.

That would make me believe that you are either

1.  Both doctors or some medical profession that required long years in college so $80K is just a small portion of your student loans left.

2.  You are both recently out of college and want to "start life now".

$450K so I presume your HHI is at least $150K, even then, that is a really tight budget with $80K student loans.

I agree with @frugaliknowit

« Last Edit: March 31, 2017, 11:53:31 AM by Easye418 »

Bales9er

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #9 on: March 31, 2017, 12:48:31 PM »
1.  Take the 30K in cash from devloper (this is technically mortgage fraud, I believe...).


????   The $30K cash is our money in the bank

Vindicated

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #10 on: March 31, 2017, 02:46:26 PM »
1.  Take the 30K in cash from devloper (this is technically mortgage fraud, I believe...).


????   The $30K cash is our money in the bank

The way you wrote your first post, it seemed like the "gift" from the developer WAS the $30k.  But I believe they're separate?

Bales9er

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Re: $30K to Play With - Whats the Best Course of Action?
« Reply #11 on: April 02, 2017, 12:14:55 PM »
Yes they're separate