Author Topic: Pay off mortgage or car loan  (Read 3234 times)

geckosgirl

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Pay off mortgage or car loan
« on: April 06, 2015, 08:39:31 AM »
Mortgage is $39,227 owed, payments are $431/mo p&i, due to be paid off in 2034, rate is 6.975%
Auto loan (yes, I know) $12.796, payments are $131/ every two weeks (payroll deduction) p & i, rate is 3.74%
Savings account $10,200
Stocks $14,500
Two incomes 52,000 AGI total.
We have about $100,000 in 401k total
Both in our mid 50's working full time
Question:  Should we pay off the car first, then concentrate on the mortgage?  Should we put more into paying off the mortgage first?  Is it wise to take all of our savings and stocks to put towards either the mortgage or the auto loan?  Thank you.

velocistar237

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Re: Pay off mortgage or car loan
« Reply #1 on: April 06, 2015, 08:51:18 AM »
The stock finance answer is pay your highest interest loan first, which at a glance would be your mortgage. Having a car loan often requires higher insurance premiums, though, which could reverse that decision. You'll have to crunch the numbers.

The MMM answer is to arrange your life so you need minimal driving, sell your car, and get something cheap if you still need it. Is this something you could do?

I wouldn't sell investments to pay down the debt if I were you. For one, you need some kind of emergency padding, preferably not your 401k. Second, the loan interest rates are borderline, especially if you take a mortgage interest deduction. Your savings account is probably not a good place to keep $10K, so do something with the excess, whether it's paying down debt or investing. After that, just pay your debt down ahead of schedule, as long as there's no prepayment penalty.

OutBy40

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Re: Pay off mortgage or car loan
« Reply #2 on: April 06, 2015, 09:15:56 AM »
I am far from a financial expert, but...

Like velocistar237, I definitely wouldn't sell my investments either, and judging from the high interest rate you have on your mortgage, that would seem like your best option to start paying down and getting rid of as fast as you can.  That will free up more monthly dollars than your car loan would, which will give you a little more flexibility with savings after you're living mortgage free.

Retired To Win

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Re: Pay off mortgage or car loan
« Reply #3 on: April 06, 2015, 09:29:21 AM »
... judging from the high interest rate you have on your mortgage, that would seem like your best option to start paying down and getting rid of as fast as you can.  That will free up more monthly dollars than your car loan would, which will give you a little more flexibility with savings after you're living mortgage free.

The issue I see here is that it would take more than 10 years to pay off the mortgage.  The car loan could be paid off in 2 or 3; then the freed-up cash thrown at the mortgage.  But that's a gut reaction on my part.

Bottom line is that the interest on the mortgage principal is double the interest on the car loan.  Makes more financial sense to throw any extra money at the mortgage.  And, once the car is paid off in 3 years throw the freed-up cash at the mortgage too.

However, if at all possible I would suggest to GET RID OF THAT CAR and replace it with something in the $4-$5000 range.

Good luck.

TheAnonOne

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Re: Pay off mortgage or car loan
« Reply #4 on: April 06, 2015, 09:47:42 AM »
Luckily, you don't owe very much money between the two at all. The risks here are pretty low... I would go for the car payment simply because you could knock it out and have all of that money to go to the house.

THAT BEING SAID....


REFINANCE THAT HOUSE!!!!

I just got a 3.25% 15 year refi done. Super Easy.

NathanP

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Re: Pay off mortgage or car loan
« Reply #5 on: April 06, 2015, 10:22:55 AM »
The amount owed on the home is probably too small to interest most banks in doing a refi.

How much equity do you have in the home? If you can stay under the 80% loan-to-value with a $40k home equity loan you should have no problem getting a very low rate. Once you get the $40k, pay off the original mortgage.

I would not pay the car off early unless you intend to sell it and buy a less expensive vehicle.

SantaFeSteve

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Re: Pay off mortgage or car loan
« Reply #6 on: April 06, 2015, 02:05:33 PM »
The car is a depreciating asset. Pay off the car first, but don't bother selling investments/stocks to do it.  I would use most of the cash savings and then make aggressive payments on the balance of the car. 

JLee

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Re: Pay off mortgage or car loan
« Reply #7 on: April 06, 2015, 02:10:50 PM »
Interest on the auto loan is under $500/year, but interest on the mortgage is over $2700/yr.  The mortgage interest is deductible, but that's a really high rate (I have 3.75%). Refinancing that to a solid rate and then paying the car off would probably be ideal.