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    Which first?

    Long time reader here so definitely appreciate all the knowledge here. We currently have two debts house and vehicle. I know the norm is to pay the vehicle off first but part of me wants to get the house done with. Am I crazy to focus all our extra on that first? Deduction on taxes is a non issue since we’ve been doing standard deduction last couple years

    House owe $36k @ 3.875%
    Vehicle owe $23k @ .075%

    #2
    I would payoff the mortgage, assuming you have no intentions of moving AND you do not need to borrow money to do any home renovations/upgrades AND you have an emergency fund.

    Chances are this will be your last mortgage but you will probably have car loans in the future.

    Also I would imagine that the mortgage payment (P&I) is more than the car payment.

    Don’t forget after mortgage is paid off you still need to set money aside for property taxes and insurance.

    How soon can you have the mortgage paid in full?

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      #3
      I'd be inclined to focus on paying off the depreciating asset (car) first, but at the end of the day it's probably not going to matter which one gets paid off. But, without anymore details about your situation it's hard to give a good answer.
      Brian

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        #4
        With so little detail, so long as you are in control of accelerated payment, I could see making extra payments directly to principal. This is most effective in initial decade where nearly all payment goes to interest. Would you consider taking on a part time job or side hustle to make this go really fast? Failing that, possibly cut a category of expense like eating out/take-out to keep the focus razor sharp with a plan for major celebratory event on completion.

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          #5
          Originally posted by terces View Post
          House owe $36k @ 3.875%
          Vehicle owe $23k @ .075%
          No way would I prepay a car loan at 0.075%. You can leave your money sitting in a savings account making 1.6% today (Capital One, Ally) and be earning way more than that loan is costing you. Make the minimum payments and keep that loan until the end. It's a great rate. About as close to interest free as you can get.

          So yes, if you want to pay extra on the house, go right ahead.
          Steve

          * Despite the high cost of living, it remains very popular.
          * Why should I pay for my daughter's education when she already knows everything?
          * There are no shortcuts to anywhere worth going.

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            #6
            taking it a step further as you only posed a question of which to payoff first...

            1) Are you and spouse maxing a 401k or similar retirement account, including catch up contributions, if eligible?

            2) Are you and spouse able to contribute to a Roth IRA and contributing the max w/ catch up if eligible?

            3) Do you have an emergency fund?

            4) Do you need to pay for college in the future?

            5) Are there any home improvements you need to take care of in the near future and do you have cash to pay for them?

            I would prioritize 1, 2, and 3 over any extra payments. After that I would prioritize extra payments to the mortgage (it's more exciting to payoff a house than a car - in my book).

            I would payoff the car loan at the original pace. Re-evaluate if the house gets paid off before the car is paid off.

            Comment


              #7
              Thanks for the input.

              The plan is to possibly move out in 8 years. We are empty nesters and we'll be looking at retirement and downsizing at that point. Just completed and paid some home improvements so we are good there. We have a good emergency fund and currently maxing out 401k with the catchups. I need to up our Roth IRA.

              We actually have the funds to pay off one but I don't want to deplete our savings. Actually both the car and house payment are about $500/ea. Its the taxes and escrow that makes the mortgage payment higher. I'm already paying almost a full extra house payment each month. With that it will pay off by 11/2020. Normal payment schedule has it paid off in 2024. The car is a 4 year loan. Actually I did typo. Interest rate is .75% But still lower than our 2% interest we get with our Credit union savings acct. So Disneysteve's comment still makes sense.

              When we do pay off the house I plan to open an extra bank account to act as our own escrow account.

              Comment


                #8
                Originally posted by terces View Post
                Actually I did typo. Interest rate is .75% But still lower than our 2% interest we get with our Credit union savings acct. So Disneysteve's comment still makes sense.
                I was kind of assuming it was a typo but the advice still holds.
                Steve

                * Despite the high cost of living, it remains very popular.
                * Why should I pay for my daughter's education when she already knows everything?
                * There are no shortcuts to anywhere worth going.

                Comment


                  #9
                  I second that on paying the house down, the interest rate for the car is pretty low. So paying the house down make more sense to me.

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                    #10
                    Have you run the numbers? What sum would be saved in interest if you used existing savings to pay off the mortgage in June? What sum would be saved in interest if you divided the payout in remaining quarters [June, Sept, Dec] The sum saved would presumably be the basis that rebuild provides the new savings foundation. Since you have retirement in place, no debt, no major upcoming expense, $ 36 K in savings could be working harder considering your Risk tolerance.

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                      #11
                      Lots of folks on this site and others will advise against paying off low interest loans, suggesting that instead you invest excess funds in the market to get a better return on your money.

                      I'm in the "pay off your debt, live debt free" camp. Being debt free and not having those payments hanging over your head just provides a real sense of freedom. In your case, I'd shoot for paying off the house, and plan ahead so when you purchase your next car, you can do it with cash rather than a loan.

                      Good luck !

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                        #12
                        Both?

                        I was wondering if they were billed at the same time. If yes, then you should regularly pay them. The car/vehicle will be over first and paid off before the mortgage since car loans have 5 years contract, I mean most likely. Then, pay off the mortgage.

                        Comment


                          #13
                          If you plan on moving, I wouldn't prepay either of the loans, especially at those rates and those relatively small amounts, and that you plan on retiring in 8 years. Add to your Roth, bulk up your retirement savings, and then pay extra on the house if there is anything left.

                          I handle my own escrow. I love it, as much as anyone can love paying $12,000 a year in property taxes. No more getting a small refund and then a bill for thousands of dollars a few months later because they don't have enough in escrow. Don't forget to add money for your homeowners insurance and 5 to 10% extra for increases.

                          Comment


                            #14
                            Another +1 for paying off the house - the car's interest rate is negligible, and you'll save more in the long run by knocking off that 3%+ interest rate. May as well make the most of it - it's a great opportunity

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