The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: psu256 on May 31, 2013, 11:35:50 AM
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Ok - here are the numbers:
Auto: Outstanding principal balance $13,650.90
Interest Rate 4.29%
Maturity date 08/05/2016
(And before you suggest it, I am not going to sell the car to pay off the loan and buy something cheaper. I love this car - a 2012 Elantra - and you will have to pry the steering wheel from my cold dead fingers. And FYI, I've had it for 18 months and it has 5700 miles on it so I at least have that much going right...)
Mortgage:
Original loan amount $217,326.00
Interest rate 4.75%
Maturity date 03/41
Outstanding principal balance $209,853.64
monthly PMI of $146.42
Now, the interest rate on the car loan is lower than my mortgage, but the interest on the mortgage is tax-deductable where the car loan is not. Also, that PMI is also a real pain in the caboose.
Which do you think I should hit first?
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I would try to get rid of the PMI first, then car... but why is your mortgage interest so high? Can it be renegotiated?
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If you are actually getting to deduct mortgage interest and have a good chance of removing PMI, it seems like a no brainer to pay down the mortgage first. It has the higher rate and additional benefits to boot.
That said, you already know what the optimal approach is: getting a less expensive car.
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I would try to get rid of the PMI first, then car... but why is your mortgage interest so high? Can it be renegotiated?
I got the loan two years ago, and interest rates have come down quite a bit since. If I can refinance the house and show I have 20% equity in the process, I can probably get rid of that PMI.
But, I am quite clueless about the refinance process and when talking about a couple hundred thousand dollars, also quite paranoid about the trustworthiness of the mortgage companies. We are talking about the bunch that caused the sub-prime mess after all...
I also assume there are closing costs on a refinance? And I don't know how to tell if paying those would be cost effective.
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I would try to get rid of the PMI first, then car... but why is your mortgage interest so high? Can it be renegotiated?
I got the loan two years ago, and interest rates have come down quite a bit since. If I can refinance the house and show I have 20% equity in the process, I can probably get rid of that PMI.
But, I am quite clueless about the refinance process and when talking about a couple hundred thousand dollars, also quite paranoid about the trustworthiness of the mortgage companies. We are talking about the bunch that caused the sub-prime mess after all...
I also assume there are closing costs on a refinance? And I don't know how to tell if paying those would be cost effective.
Doing your research and finding the information is free. It could save you thousands (tens of thousands?).
So by making a phone call or two you may find out you can get rid of the $146 per month PMI payment, lower your monthly mortgage payment and pay thousands less in interest over the next 30 years?
Pick up that phone! :)
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I, and several folks I know including attorneys that work in real estate, have used CapCenter in Virginia numerous times. They are just a super option. If you are not in this area, then perhaps there is an equivalent where you live. Mortgage refinance usually comes with a significant cost, but one that pays for itself fairly quickly if you knock enough off your rate.
I don't consider your interest rate to be terrible per se, but you may be able to lower that by about 1.5 points, which would be very, very nice on your bottom line. I would not dawdle though, the window of super-cheap interest rates may already be starting to close.
http://money.cnn.com/2013/05/30/real_estate/mortgage-rates-rise/index.html
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If it were me, I'd do the mortgage first. PMI sucks!