which to pay off 1st....2nd mortgage or car loan? (interest rate, credit card)
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Need some advice on which to pay off first. We can pay off one of them right now, just not sure which one to pay. Here are the details.
Have one car loan that the pay off is $6,179. It has a 1.9% interest rate and approx $10.00 a month interest. It matures in August 2011.
Have another car loan that the pay off is $12,974. The interest rate is 5% and the monthly interest is 69.76. The maturity date is Sept. 2012.
We could pay both of these of right now or we could pay off:
Second mortgage. It equals $21, 536 with a 7.5% interest rate. The monthly interest payment is $141.66.
The total monthly payments for the car loans = $592 per month
The total monthly payments for the 2nd mortage is $159.59 per month.
The only reason we have a 2nd mortgage is because we only put down 10% on our house when we bought it several years ago and it is our first house. We don't have any other debt other than the car loans and the mortgages.
I assume you itemize your deductions? I'm not a tax expert, but depending on your tax bracket the 7.5% interest rate probably comes down to ~5% "real" interest after deduction. If that's the case, the cost of debt is roughly equal to your 5% car loan. If it was me, I'd pay off the 2nd mortgage since it's probably amoritized over a much longer schedule than the 2nd car loan.
I disagree. You can itemize your interest payments on your mortgage and as far as your credit numbers are considered the consumer debt weighs more heavily so I would pay off the car loans, the one with the higher interest rate first asnd then the other car loan and I bet your FICO score would increase more thasn if you paid off your 2nd mortgage. My opinion.
It all depends on how financially sound you and your jobs are. If you think you or your wife has a small chance of losing your jobs you may want to pay off your car loans first that way you free up almost $600 dollars in monthly payments. If your just looking at which will save you the most money I would pay off the 2nd mortgage.
A little bit more info. The 2nd mortage matures in 30 years. Regardless, I plan on paying off both in the next 5 years...just can't decide which one first. I'm not too worried about my FICO as it is 802. Very proud of my score. I've never had credit card debt. This is probably why it's high. Both cars died right after we bought the house and that's why we took out loans for these.
I agree with mfrank2109: Pay off the cars then apply your monthly payment to the 2nd mortgage to pay that off sooner. This way both of your cars will be paid off and your only debt will be the mortgage. You'll continue to get tax breaks from the interest on the house, so it's not really a losing situation for you.
1st question is what is the rate on your primary mortgage? If you think you can knock a couple percent off in a refinance, it may make sense to pay off the second mortgage and then refinance the first.
Second question...is the mortgage variable? If so, pay it off.
2nd question. What tax bracket are you in? Your effective interest rate is 5.625% at 25%, 5.4% at 28, 5.025 at 33 and 4.875 at 35. As these rates are pretty similar to your 2nd car, I think it is worth paying off the 2nd car just from a cash flow standpoint. Then apply the rest to paying down your 2nd mortgage. I'd also increase your payments by the several hundred dollars you are no longer putting into the second car, which would likely pay off the 2nd mortgage in around 3 years. The benefit is if you have a cash crunch, you can go back to your orignial 2nd mortgage payment, freeing up several hundred a month.
I would just pay the first car off at your current rate in any case.
I would pay off the car loans in this economy because it has the largest impact on your monthly cash flow. You probably don't have cash flow issues or you would not have $21k or so to pay these off, but look at it like this: if you pay off cars and use the extra $592 monthly towards your 2nd mortgage it will be paid off in 3 years assuming your current payment has no principle reduction in it. The same is true if you pay the mortgage and make extra payments to the cars.
If you have a major unforseen expense or a job loss over the next 3 years you will be able to weather it alot better by cutting your monthly obligation as far as possible.
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