Do I need additional capital repayment on my car loan or mortgage first?

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Okay, I mean an annual surplus of budgeting money. I gave $ 1500 a year to go to the depths of paying loans. I have about $ 9000 on a car loan with about 3 years to 8%. I also have a $ 170,000 mortgage with 30 years at an interest rate of 6%. No credit card Schulden.Soweit total savings would go to pay it not wiser to the first mortgage in principle? Right?

  1. Reply
    v b
    May 2, 2011 at 12:05 am

    Check the wording of the car loan. Rule of 78 is still legal in some states. If you have a rule-of-78 car loan, do not bother putting money on it–you won’t get credit for it. These type of loans won’t give you credit unless you pay off the ENTIRE loan at once.

    As for loans, the rule is either highest interst rate first (car) or smallest balance first (car).

  2. Reply
    John C
    May 2, 2011 at 12:21 am

    I would put it on the car loan because it is at a higher interest rate and it will be paid off first.

    Only pay down the mortgage if the following apply:

    Your rate of return elsewhere is below 6%
    You plan on staying in the house and paying it off (It won’t help cash flow until the entirety is paid off)

    If it were a lower priced home my advice may be different, but Because your home is this expensive, and you have a decent rate, the mortgage interest deduction does you a lot of good. I would say that if you have only owned the home for a short period of time, doubling your principle payment may be a good idea if it does not hurt cash flow, the amortization schedule on a 30YR loan is ridiculous.

    For those who have a tax rate of 0 to 15% and a low loan amount, they receive no benefit from the mortgage tax deduction, so paying down on the principle helps more, since there is no tax benefit to help subsidize the high mortgage.

    The best move for your money would be to put that $ 1500 in a 401K or IRA invested in a total stock market index fund or a small cap index fund if your effective tax rate is over 20%, if its less, put it in a ROTH IRA or 401K.

  3. Reply
    May 2, 2011 at 12:40 am

    Depends on your priorities.

    The mortgage paydown will save you heaps in interest – in 30 years time.

    I would pay down the car, though.

    A car’s value depreciates, and they’re only reliable for 5-10 years.

    If you can pay off the car and it’s still in good shape, then you will have that extra $ 300 or so a month to pay down the mortgage, or use for a downpayment on your next car.

    You might want to shop around to see if you can get a better rate on both loans. Do the math and see if refinancing them with a lower interest rate or term will save you or not.

    EDIT – All of these answers are pretty sound advice.

  4. Reply
    May 2, 2011 at 1:33 am

    Pay down the higher interest rate first. Once that’s gone, put your monthly payment towards the next one.

    To prove the higher interest is better to pay down than the higher balance, make a spreadsheet.

  5. Reply
    David L
    May 2, 2011 at 1:55 am

    You should pay off the one with higher interest rates this will save your money if the loan is completed within short period.
    Also the interest rates charged on auto loans are lower compare to mortgage loans.
    So its better you pay off mortgage loan.

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