Payout Car Loans or Keep as Cash or Put in Mortgage Offset?

thisispete on 05/09/2019 - 11:17

Hi All,

I've just come in to some money, inheritance (sadly). I don't have any credit card or personal loan debt, outside of 2 car loans and a mortgage.

I'm considering out of the inheritance that I should payout the car loans, with a payout figure for the car loans at around $22,000 combined.

What I am struggling with that over the remaining term of the loans, by paying them out today I will save about $1500 in interest of the remaining term. However I am not sure if I am better off keeping that $22,000 in cash or adding it to my offset on my mortgage or paying it off the loan itself.

I know the usual thought is to pay off the highest interest rate loans first, but for $1500 in interest it seems like it may be worth just keeping it easily accessible?

We aren't immediately looking at selling our house or buying another as an investment, but if we do sell if another 12-18 months that $22k would go a bit of the way to not needing Mortgage Insurance again.

Thoughts?

Financial

Comments

  • boomramada on 05/09/2019 - 11:25
    +12

    Pay the highest interest rate loans first, get your $1500 bonus, save your repayment money as easily accessible fund and keep it in your homeloan.

    Think like you are in a boat, always good to fix the bigger hole first.

  • HighAndDry on 05/09/2019 - 11:26
    +5

    We aren't immediately looking at selling our house or buying another as an investment, but if we do sell if another 12-18 months that $22k would go a bit of the way to not needing Mortgage Insurance again.

    Pay out the car loans. Don't buy another ppty until you can afford it without mortgage insurance.

  • josh676 on 05/09/2019 - 11:40
    +2

    You'll save far more than 1500 dollars in a year if you pay 22000 off a car loan. I think your sums are off.

    Example - 22000 @ 10% = 2200 dollars in interest in one year alone.

    For you to only pay 1500 dollars you've gotta have only 8 months left on the loan, and your repayments would be like 2500 per month???

  • FloatingPoint on 05/09/2019 - 11:48
    +2

    that $22k would go a bit of the way to not needing Mortgage Insurance again.

    Your borrowing power will take a hit from those debts (car loans).
    Pay out those car loans asap before thinking about property.

  • ihbh on 05/09/2019 - 13:14

    but if we do sell if another 12-18 months

    Pay off highest interest loan(s).

    Don't be so quick to buy and sell real estate. The transaction costs could be far more than the $22k windfall you inherited - why waste it and more?

  • Cheapskate Paul on 05/09/2019 - 20:19

    Pay off the car loans and then promise yourself you will never borrow to buy a car again. Save the amount that you would pay for the car loans so that you have money to buy your next car.

  • Kinko82 on 06/09/2019 - 19:13
    +1

    Best to check if your car loan is a fixed loan or a variable loan. Often car loans are fixed term loans so the interest for the fixed term is already added to the loan for you to pay off overtime. So in other words. Interest isn't calculated daily as you pay down the principle.
    There may also be penalties or early termination fees.

    • Skramit on 07/09/2019 - 13:38

      What he said.

      If your car repayments are say $400 a month, that is including interest. So if you have a year left on the car loan of $4800, that will already be including the interest. So paying it off early is of no benefit you're still gonna pay the 6 or 8% interest for that final year… your still paying full interest! Most car loans are structure this way deliberately for this reason.

Login or Join to leave a comment
Login Join