Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Okay I’m confused here. My wife and I (both 32) have finally managed to save the 20% down payment threshold for our 1st house. We plan on relocating out of state in the coming months and will be renting for about 6 – 12 months while we get settled and explore communities in which we’d like to buy our house. Meanwhile, we’ll continue to save for closing costs and reserves and pay off our cars before our big purchase. Afterwards we’d like to raise a family and have my wife stay home to with the kids.
Should we use half of the down payment we have saved and pay off our cars now? Or should we hold on to our down payment and progressively pay off our car loans over the next 12 months? The money we pulled from our down payment would be replenished within 6 months.
The interest rates on our car loans are less than 1% higher than the rate we are currently getting on our CD account. However, CD rates are going down and I’m getting worried about the shaky economy and the value of the shrinking dollar (and the possibility of bank runs). It would feel nice not to have any car payments and it would free up our cash flow. On the other hand, I understand that cars are depreciating assets and I may be better off just paying the loan down through out the year.
I would just pay the cars off over the next twelve months. Almost every car loan I've ever seen you don't save much interest by paying early, unlike a home mortgage.
So, even if I'm not planning to purchase a house until 10-12 months I should pay off my cars through out the year?
Also, assuming we hold onto our down payment what should be our next priority? Save for reserves & closing costs then pay down the cars or pay down the cars and then save for reserves & closing costs?
Last edited by mrlucero2002; 03-13-2008 at 06:58 PM..
In an inflationary world, which everyone is concerned about - the smart thing to do is to finance. Because you are agreeing on a price now (in today's dollars) - but paying it off tomorrow (in tomorrow's dollars that have less spending power).
I.E. Today the Kia costs $10,000.
Next year due to wild inflation (this is theoretical of course) - the same Kia costs $15,000 to cover costs because the dollar has fallen in value so much.
You buy today - the $10,000 Kia.
You get a loan for 5 years, 4.5% interest or whatever (I'm not doing the real math here)
and lets say your payment is $100/month.
So next year you are still paying $100/month. Even though in deflated dollars you would really need to be paying 125/month or 150/month for the company to get the same amount of value..
You follow?
One of the rerasons that time value of money is always so important in economics (cash now is always worth more than cash later) - when the dollar is falling and inflation is rising - it is even more so ... A dollar today buys more than a dollar tomorrow.
Keep your savings in an investment vehicle (liquid if you are purchasing a house soon) and don't pay off your vehicle one day early.
How long have you been paying your cars off for and when did you think about starting to save for a house?
We've been paying for our cars for the last 2 years and started saving over the last 2 years. Since my wife graduated from college and we had dual incomes we were able to start saving. Our cars should be paid off in early 2009.
Thanks for all of your help everyone. I understood the who TVM idea the use of leverage, but I just couldn't get it through to my wife. We're going to take advantage of this inflationary period and use it to our advantage.
If you have saved 20% for a house payment (Congratulations to you on that, by the way), I think it would be prudent to wait. As an earlier poster noted, you will be only paying the principal on your cars at this point.
The other thing to consider is that, given the volatile economy, I would hang onto every dime I had. $20,000-$30,000 gives you a lot of added security and comfort in tough economic times. Once the market bottoms out, and you feel pretty secure in your financial position, you'll probably also be able to enjoy fire sale prices on homes with incredibly low mortgage rates. So I would bide your time, and let your current nest egg be a cushion through the uncertain months ahead.
It sounds like you have a big plan, moving, buying a house, having your wife stay at home. Moving is expensive - adjusting to your new area including possible deposits on utilities, rental home deposits etc. Then there is adjusting to being a one income family. On top of all that who knows how the economy will be in 1-2 years when you find a home in your new town.
Before you even move, definitely get rid of all those bills - including car payments. That is a big payment to carry with you as you adjust to a new city. It sounds like you are thinking things through carefully though.
However, I would not take money out of savings to do it. Just double up on pmts to get it done. You ALWAYS need that money in the bank for emergencies.
Pay off the cars right away. Why? Because you'll not only eliminate the monthly payments (which is obvious), but you'll also be able to reduce your insurance coverage and thus reduce those monthly payments as well. The savings can amount to a lot if you cut your coverage with a higher deductible and minimum coverage. Lastly, when it comes time to buy a house your credit worthiness will be higher as your credit reports will reflect the loan payoffs.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
). It would feel nice not to have any car payments and it would free up our cash flow. On the other hand, I understand that cars are depreciating assets and I may be better off just paying the loan down through out the year.
