Finance - Which to pay first?
 

I have two loans that I pay additional principal on each month; home and car?

Both are at similar interest rates (the car could be a little lower %). Is there one I should focus the additional money I can pay towards principal first? First thought is the home since the terms are longer, but it would also be nice to have the car paid off sooner. Then again the car loses value each month too.

Some months the additional I would pay on the car just goes to the lender's bank and sits in a savings account I had to open (credit union). I figure if there is a major service I have money or I could eventually use that money in their savings account to pay off the loan.

Is there any consensus on which to focus on or just pay some extra on both as I have been doing?

Re: Finance - Which to pay first?
 

I'm not an expert but I would pay the car first. Once its paid off then use what you're saving on the car being paid off to pay even more on the house.

Re: Finance - Which to pay first?
 

It would be nice to have the car paid off. I'd like to buy a 2nd car and was kind of dependent on the 1st being paid. I don't like loans.

I thought since the terms on the mortgage is so long, that the interest would even bigger if I didn't focus on the house as much.

Re: Finance - Which to pay first?
 

I follow Dave Ramsey's advice.

Pay off the smallest loan first. Then apply what you were paying to the remaining balance.

Debt snowball!

https://www.daveramsey.com/blog/get-...-snowball-plan

Re: Finance - Which to pay first?
 

Ok, I think that settles it then. I'll concentrate on the car then.

Re: Finance - Which to pay first?
 

Good choice. Another benefit is that mortgage interest on your home is deductible on your fed taxes whereas car loan interest is not.

Re: Finance - Which to pay first?
 

Paying the additional principal on the car is kind of a pain. I have to transfer the money to the credit union savings account first. I pay the loan from my default bank, but if I do that for additional payments, it does not go to principal. It's not real pain, but I wish they had a better system.

Re: Finance - Which to pay first?
 

The Fed has dropped interest rates 3 times in the past few months. Have you looked into refinancing your mortgage to get a lower rate?

Re: Finance - Which to pay first?
 

Not really. I worry if I refinance to a 20, the amortization schedule may play against me.

I could look into it and see if it really makes sense. I am at an effective rate of 3.8750% currently on my mortgage.

Looking at a mortgage calc, I could do a 15 fixed and pay similar to what I pay now. Something to consider. I will stop by a bank and talk to them. Thanks!

Re: Finance - Which to pay first?
 

The strict financial answer is "Pay off the higher interest rate first".

...but if it were ME? I'd pay off the car loan first. The feeling of "awww yesss it's paid off!" is just too good.

Re: Finance - Which to pay first?
 

The car is at 4.4%. I too would like to get the car paid off and explore a refinance on the home.

Re: Finance - Which to pay first?
 

I dont see this as a completely cut and dried case. The fact that extra payments on the car go into a savings account instead of applying to the principle makes it sound like the way the car load is written there may be a penalty for early payment and the savings account is how they attempt to delay your paying it off first. If that is not the case then debt snowballing applies and the smaller of the two should get the extra payment to get rid of it sooner and then move on to the next larger.

Re: Finance - Which to pay first?
 

I apologize for not be so clear. Within the credit union site which allows me to make principal only payments does not allow me to associate an external bank account. I pay my monthly payment direct from my primary bank to the credit union. If I want a principal only payment, I must do that from within the credit union site; hence transferring money to savings account I needed to open to be a part of the credit union.

Not ideal, but not the end of the world either.

Re: Finance - Which to pay first?
 

Ditto

Re: Finance - Which to pay first?
 

Based on this information then I agree with those saying Dave Ramsey plan. As an avid practitioner of that plan I can say it works very well. About 4 more years and I will be screaming "I AM DEBT FREE"

Re: Finance - Which to pay first?
 

I had a lot of issues due to my loans back in the day. I think one of the most important lessons I got was to not overdo it. I also relied a lot on credit cards and short term loans in order to enjoy my life at the fullest. There was a time though that I struggled a lot and I started reading books. If you have a look at some of the best reads you will realize that the I am a mastermind when it comes to investing.

Re: Finance - Which to pay first?
 

Where do these prison escapees come from? Bots Wanna?

Re: Finance - Which to pay first?
 

Or Indee Ahhh

Re: Finance - Which to pay first?
 

Well an update to this. Car was paid off in November. Was looking to refi to a 15 year on the home, but when I ran the numbers it did not make sense to take on 8K refi charges compared to what I would "save" with a lower interest rate. I just pay more now on a principal only payment which brings me to a similar pay off date as the 15 year without any additional charge to refi.

Re: Finance - Which to pay first?
 

I just seen the thread so I am not able to give retroactive advice. However, paying principal only payments on a longer term loan will benefit you way more. You are smart to add extra payments to your house. Depending on your interest rate and how many years you owe, you could save potentially 6-8 months off principal off the total loan with just one extra payment. Of course, the shorter the term of the loan, as I said, the lesser the benefit. I dug us out of stupid debt in the mid to late nineties. I did stupid x 10, mostly by buying and then trading a new car. Dumbest thing I've ever done. Then in 1999, my wife was hospitalized for 8 days and we had no insurance. She got the mumps from some tyrant a client brought over during a meeting. Her air passage way closed up and she damn near died. All the money we had saved to build a house was lost paying off doctors and setting up a payment plan with hospital after draining our bank account. We were in bad shape by June 1, 1999. But, by some miracle, we still managed to build a house 1 year later simply by working our asses off. We have not had a car payment since 2004 and only owe for the house thanks to loosely following the Dave Ramsey plan. I strongly recommend listening to him and taking his advice. No more car loans for us.

Re: Finance - Which to pay first?
 

Moose, stop spoiling the Corgi and put more towards principal!!

Re: Finance - Which to pay first?
 

My interest rate is currently 3.8750% and I have 24 years left on the loan. I do about 3 months of additional principal payments a year.

I am trying to avoid a future auto loan, but may do a 50% down auto loan next season. At least I won't ever be upside down on the car.

Re: Finance - Which to pay first?
 

8k for a refi. Damn I don't think I would have done that either. We did a refi in September. 4k total. 2.5 of which was buying a 1/2 point on the final interest rate.

Re: Finance - Which to pay first?
 

I thought 8K was excessive as well. This was through the same bank I currently have a mortgage with. They also wanted a new appraisal when I had an appraisal with them 6 years ago when I refinanced. All property has gone up since then...

I ran some calculators and it looks by paying ~$500 extra towards principal will get the loan paid off in around 15 years and save almost 60K in interest. I am going to just stay on that path. 3.8% interest I am fine with for now.

Re: Finance - Which to pay first?
 

I am currently in a similar situation. Several years ago my wife and I were able to be debt free. Flash forward some years and our autos were getting older and we had to buy newer vehicles. I also went into a part time business doing lawncare and have made pretty good money doing it. I paid off the wife's new car we bought in 2016 in about two years. Now I have a truck financed and an almost 10K lawnmower I bought last spring. I did retire from my full-time job in November 2020. Drawing my state retirement and doing lawncare exclusively now. I have paid extra on the truck and the mower and right now I owe about 7K on the mower, and I recently refinanced the truck with my credit union from the dealer financing expressly for the reason Moses had with the principal payments no going to principal with a transfer or online payment at the other bank. The refinance of the truck extended the original term a few months but made the payment almost 50 bucks a month less but I am still at the least paying the same payment as before. As soon as the lawncare gets going full force (prolly next month) I will then be able to throw about 1500 or 2000 a month at one or both loans. I have waffled back and forth on which one to pay. The regular payment on the mower is $208 a month and the truck is now $458 a month. On the one hand the mower is a no interest for 48 months so there is no savings to be had for paying early. The truck interest is 3 point something so there is savings to be had there. But I also in the past have attacked the lower balance stuff first and had good results. so I think I will hit the mower first since in maybe three to four months it will be paid off. Now that I am semi retired the wife and I would like to buy a travel trailer so we can explore the mountains of North Carolina and Tennessee and be more mobile than renting the same cabin like we have for the last few years. But I have made my mind up that we will wait until the truck and mower are paid off before buying.

Re: Finance - Which to pay first?
 

I think an appraisal is just always gonna happen. We were with Wells Fargo, they refused to do a refi saying they wouldn't do an appraisal which required the appraiser to enter the home, due to COVID. I asked if that would change soon. Nope. Even told them the only thing keeping me at WF was my mortgage and combinations with all the other products. So we called a Mortgage Broker who lives in our neighborhood. Great process and talk about working for the money. They worked their but off. We closed by having the Attorney come over and signed paperwork in our backyard.

For the appraisal we had to open all the windows and turn fans on, everyone wear masks. Still not a bad deal IMO.

Honestly I don't know where rates are for mortgages are right now but 3.8 is high, or was in September. That was our rate. We are down to 2.2. Shaved a little over $200 off the payment with the interest rate alone. We extended the mortgage by 3 years by refinancing. Cost of the refi and to catch up to where we were will take 3 years but be nearly cost neutral in that time due to the change in interest rate. After that 3 years we can start saving keeping that extra or pay to the mortgage.

I'd look around if you could. Wells is losing a customer they had for 23 years, 3 mortgages (all paid off), a bank box, 2 checking, 2 savings, money market, IRA. Only thing I'm keeping with Wells is my CC that unfortunately has the highest limit of all my cards. Getting rid of it would hurt my credit score too much. That is to say I've done most of my banking my entire life with only Wells Fargo. I was hesitant to switch but they forced my hand.
Your bank shouldn't be in the way of refinancing at 3.8 rate.

Re: Finance - Which to pay first?
 

Whatever the interest rate was when I last checked + plus expenses for the new loan wasn't any different than me just paying the nearly the same amount if I went with a 15 year. The closing cost and amortization schedule off set any reduced interest on the 15.

@kydsid - I have closed cards and took a hit on my credit. Wasn't much and bounced back quick enough. Didn't lower it enough to negatively impact anything I needed new credit for.