<< Back to all Blogs
Login or Create your own free blog
Home > Pay Off Mortgage or Car First?

Pay Off Mortgage or Car First?

April 9th, 2007 at 04:00 pm

Now that the credit card payoff is within sight I need to decide which loan I'm snowballing next. Should it be mortgage #1 or the car loan?

I have gone back and forth on this decision, but I'm leaning toward the car loan right now.

The mortgage has a higher interest rate than the car loan and has a lower balance. If I were to snowball into that loan it could be paid off in 2008.

But my thinking is that the car loan is for something that depreciates quickly and if we were to have to get another car and this loan were not paid off we'd be rolling a lot of money onto another loan.

What would you guys do?

7 Responses to “Pay Off Mortgage or Car First?”

  1. Kelly Says:

    Pay off the car loan first. Some of the interest you are paying on the mortgage is tax deductible, so in essence that brings the interest rate down.

  2. quippymcflippy Says:

    I'd say go with the car. I paid off my student loans this way (smallest sums first) and am way ahead of my classmates! It's all about the feeling of $ucce$$!

  3. MsSuperSaver Says:

    I would vote for paying the car loan first also due to the tax benefits of your home mortgage. Great job on paying off your debts!!

  4. Ima saver Says:

    I would pay off the car, but keep putting that car payment away in a "car account" That is what I am doing.

  5. disneysteve Says:

    This is an impossible question to answer without knowing 2 things:

    What are the interest rates on each loan?
    What is your tax bracket?

    If the mortgage interest is still higher after accounting for the tax deduction, then pay the mortgage first.

    It doesn't make sense, financially speaking, to pay the lower interest rate first.

  6. heather Says:

    I struggle with the same question. Seems like a smart choice to pay the car as the interest is not tax deductible. If you feel, however that you will pay off your car and then buy new one shortly there after, I might rethink the thought. Why pay off your debt if you already plan to accrue more? My advice, pay the car and drive it well after the life of the loan.

  7. Canadian Freedom Says:

    I have mulled this question over myself a number of times since although mortgage interest is not tax deductible in Canada my car loan interest rate is slightly less than my mortgage interest. Some other factors to consider (other than deductible interest).
    - Cash flow. If you can improve your cash flow by eliminating a payment sooner you have a bit more of a cushion if for some reason you lose some of your income. That is less money you would need from your emergency fund. Even if your income remains the same you can snowball that into your larger debt.
    - Car Insurance. Are you required to have more insurance on your car than you would normally have if it wasn't security for your loan? This is an added expense you can eliminate over and above your interest cost and should be factored in.
    Good luck!

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
Will not be published.

* Please spell out the number 4.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]