Author Topic: Mortgage vs. Car Loan: Where to put my savings?  (Read 1684 times)

fauxsoup

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Mortgage vs. Car Loan: Where to put my savings?
« on: June 27, 2015, 11:58:13 AM »
Alas, had I read this blog a mere 7 months ago (or even better, over a year ago), I would not likely find myself in this position.

In April of 2014 I bought a $200,000 house with a 7% down payment on a 30 year mortgage (and a 40 mile commute to work). 7 months ago I sold my used 2004 Nissan Maxima for a brand-spanking new 2015 Subaru Forester.

Now, I gather from MMM's first couple of posts that I should start paying off the car loan, but I'm wondering if these are extenuating circumstances: 1) that I have a 40 mile commute and will probably want to move closer to the work in my state, and 2) that my home's interest rate is higher than my car's.

I'm a brand new mustachian having just started reading a few weeks ago. I was saving 15-20% of my income before-hand (though technically not when you realize that I used said savings for down-payments rather than investments). With a few common-sense adjustments, I should now be saving 28%, and when I quit smoking I'll be at 35%. At my salary I could pay my car off in just over a year, build up 10% more equity in my house over the same time.

Edit: I should note that my mortgage has a monthly PMI payment that's about half of my current car payment.
Thoughts? Opinions? Rotten tomatoes?
« Last Edit: June 27, 2015, 12:08:11 PM by fauxsoup »

Rural

  • Magnum Stache
  • ******
  • Posts: 4937
Re: Mortgage vs. Car Loan: Where to put my savings?
« Reply #1 on: June 27, 2015, 03:04:09 PM »
What are the interest rates? Payments? How much do you owe on each, and how much is each worth? If you could sell one (or both) for what you owe, that's better than making payments.

Catbert

  • Handlebar Stache
  • *****
  • Posts: 1872
  • Location: Southern California
Re: Mortgage vs. Car Loan: Where to put my savings?
« Reply #2 on: June 27, 2015, 03:21:56 PM »
In general it's better not to pay extra on a mortgage until all consumer debt is gone and you're maxing 401k/IRA/403b/457.  The exception to this is if you can pay down a mortgage and then get out of PMI. 

But before you consider paying down your mortgage you need to ensure that you understand how your PMI works.  Is there a minimum time period you must pay PMI?  What is your house worth?   What % if equity do you need?  Is it loan to current value or loan to purchase price

Cycling Stache

  • Bristles
  • ***
  • Posts: 472
  • Age: 44
Re: Mortgage vs. Car Loan: Where to put my savings?
« Reply #3 on: June 27, 2015, 03:43:41 PM »
With a few common-sense adjustments, I should now be saving 28%, and when I quit smoking I'll be at 35%.

Talk about an incentive to quit smoking.  Time to quit!  Pour the savings into the car loan and feel good on both fronts.

fauxsoup

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Mortgage vs. Car Loan: Where to put my savings?
« Reply #4 on: June 27, 2015, 03:58:11 PM »
Payments are:

  • Mortgage - $1,614.79 (5.125%, 30-year fixed)
    • Principal: $229.88
    • Interest: $778.78
    • PMI: $177.53
    • Insurance: $113.50
    • Tax: $253.19
    • Overage: $61.91
    • Original Loan: $185,250.00
    • Total Remaining: $182,349.05
    • Original Purchase Price: $195,000
    • Equity: $12,650.95
  • Auto: $334.72 (estimated 4%, 5-year)
    • Need to call bank to determine exact interest and balance

Didn't realize I was paying an overage on my mortgage until just now. And apparently my down-payment was only 5% (I believe the rest went to closing costs).

One strategy I've been contemplating after reading some other posts with similar questions is refinancing the mortgage to a 15-year fixed and then paying off the car.

I would need some convincing that selling either would be the right move at the moment. The house is in need of repair and is a town that probably has a poor market. I would most likely have to short-sale with some of the damage that's been done and discovered (some decaying logs in the wall, scratches in the hardwood floor, high-humidity basement), and I don't have a lot of wiggle room for that. I intend to DIY some of these things (expect posts in that section soon), then consider selling at that time.