Home and Auto

[kybearfuzz]

Ugh. Another week of not posting. Work is the devil.

I have a dilemma that I'm sure a lot of people would love to have. I have been saving money of late in the hopes of buying a new car. My current car is from 2007 and has almost 160,000 miles on it. Granted, that's not bad, but I'd enjoy getting a new car before I have to start putting money into this one. I have the money right now to buy the new car outright if I want.

However, the other day, I got my mortgage statement for my house. The amount I owe on the house is pretty much the same as the new car. Back in 2001, I changed my 30-year mortgage to a 15-year and have steadily paid it down, so I have a little over a year left on it.

So, the choice is do I buy the new car or pay off the mortgage with the saved money? There are pros and cons to each.

If I buy the car, the status quo of the household budget won't change significantly. I have a newer vehicle with more bells and whistles and the mortgage payment stays the same. I still get to take off what mortgage interest I'm paying on my taxes, which means a bigger return in the spring.

If I pay off the house, the mortgage payment disappears. So I can finance a new car at that point, the monthly payment being less than the mortgage payment, so I come out a few bucks ahead and can save the difference. When it comes time for taxes, I won't have the mortgage interest to itemize, so my return will be significantly less.

Either way would be great, but I'm terrible at deciding when it comes to these sorts of things.

What do you think?

Comments

[qbear.livejournal.com]

I'd go for the car. In one year you'll still have a virtually new car, fully paid, and no more mortgage.

[texwriterbear.livejournal.com]

I agree with Jack. Buy the car, and you still have the mortgage interest to deduct for one more year.

[dr-tectonic.livejournal.com]

If you're down to a year on your mortgage, you're paying almost nothing in interest. It's almost all principal at this point. Google "amortization calculator" if you want to find out exactly how much of the year's mortgage payments will be going to interest, but it's only going to be a small percentage of the total you're paying.

So if you buy the car outright, the only interest you pay will be what's left on the remainder of your mortgage - which probably amounts to a few hundred bucks -- and you'll be payment-free in 12 months.

If you finance the car for 48 months, you'll for sure be paying a decent chunk of money in interest. I would estimate around double what the percentage rate of the loan is, so if you get it financed at 3%, you'll pay around 6% of the cost of the car in interest. Plus then you'll have a car payment for the next 4 years.

I would go for buying the car rather than financing it and paying off the mortgage. The total interest paid is probably lower (though it could be close, depending on the interest rates), and I think it'd be worth it to be payment-free in a year. Especially if your current household budget is comfortable.

[mrdreamjeans.livejournal.com]

I'd keep the mortgage interest write-off. The house Is an investment. The car will depreciate the minute you drive away from the dealer.

[barak.livejournal.com]

Finish paying off the house. That'll be one less bill for you to worry about in the interim and you can save up faster. If for some reason, you absolutely need get a new vehicle before you save up again , you could lease. Cars may come and go, but your home is your best investment.

[notdefined.livejournal.com]

Buy the car, keep the interest deduction while you can get it.

[ricksf.livejournal.com]

Although your car is running OK now, any car with 160K miles is going to have mechanical failures which could be pricey. That combined with the tax deductions from what little mortgage interest you're still paying is likely the most cost effective alternative.

Besides, owning a new car is cool!

[pbehr.livejournal.com]

How about buying some physical gold instead of either of your alternatives? :-)

There is a probability greater than 0 that the whole financial system will collapse over the next couple of years. Gold is currently very cheap -- below the cost of production -- which limits the downside. The upside is huge -- maybe a doubling, maybe a tripling, maybe an increase of 10 times. I'm no insider or expert but, with rampant quantitative easing (money printing it used to be called) from the big western central banks (US Fed, ECB, Japan), it's clear that some big bad changes are going to come.

With gold, it's essential that you have physical and not paper and that it's not within the banking system. So keep some under the bed (don't tell anyone but you can fondle it in the morning) and some stored in a secure private vault in Singapore or Hong Kong. This is insurance against bad possibilities. And the future payoff could be 10 new cars or a very big new house or........

I'm not qualified to advise anyone. But I do like to throw out ideas. :-)

[dendren.livejournal.com]

go for the car, the mortgage interest return is a nice bonus at the end of the year.