$10k Pay Car Loan or Home Downpayment in 12-16 months

TheStation · #1 01-30-2007, 10:07 PM

Scenario:
Pay $10k towards a 4.9% interest car loan

OR

Use $10k to add to your home downpayment that you will be making in 12-16 months. With or without this $10k you will only be able to put down 10% on a home but not hit the 20% mark.

Thoughts?

hedgeyerbets · #2 01-30-2007, 10:33 PM

there are savings accounts that pay above 4.9%. You'd be a fool a fool to pay off the car loan. If rates come in in the future, you can pay it off then.

Cubswin · #3 01-30-2007, 10:37 PM

I think if you crunch the numbers the results would be about the same. 4.9 vs 6% (less mortgage interest and possible PMI deductions). Without knowing exactly what your income is and the cost of your home, I dont think we can make an exact determination.

Are you (or your spouse) eligable for a ROTH in 2006? This is another place you might want to consider putting some money.

Cubswin · #4 01-30-2007, 10:39 PM

After paying tax on the interest income from these savings account, he would most likely be earning under 5%.

hedgeyerbets · #5 01-30-2007, 10:41 PM

yeah mental slip up on my part. only debt i've ever had I can take deductions on the interest

squiffy · #6 01-31-2007, 01:18 AM

What is your home mortgage?

If you have a 6% or 7% mortgage, 30 yr fixed, then the 10K payment should save you quite a bit of interest over time. And if you hit 20%, you should save some money on PMI insurance.

I would say the larger mortgage downpayment is slightly better, no?

TheStation · #7 01-31-2007, 02:40 AM

I agree - Keeping the $10k around for the mortgage is going to be better and get me closer to the 20% mark which should help me get a smaller 2nd mortgage to make up the 20% and therefore pay it off quicker and not have to pay PMI for as long (hopefully < a year)

Thanks for the advice.

squiffy · #8 01-31-2007, 08:25 AM

Also, possibly look into putting some of the car loan onto a Discover Card, if you can qualify for the 0% interest offer for new applicants, until Sept. 07. Make sure there is no balance transfer fee. And make sure you can get the offer extension. Supposedly the offer extension is a 0% loan indefinitely, so long as you make purchases of $25 a month on your card.

I am not sure if this offer is legit. I haven't seen the fine print yet.

If the Discover Card doesn't work for you, see if you can put a small amount, say $1,000 or $2,000 so on a legit 0% balance transfer offer. So long as you can make the minimum monthly payments, perhaps it's a way to save a tiny bit of interest.