To Finance Master. I have home mortgage, 77K + 10 yrs left. Trying to pay off early (in 5yrs paying $400 extra

To Finance Master. I have home mortgage, 77K + 10 yrs left. Trying to pay off early (in 5yrs paying $400 extra
is it better to pay $400 extra every month? I also have 17K left for my car 3yrs left. What is the best way? Please help!
Personal Finance - 3 Answers

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1
Compare the interest rates on the loans with the return you could make on the money elsewhere. For example, if you're paying 5% interest on a loan, but you can make 7% in an investment, you're better off investing the extra money than paying off the loan. That's especially true of a home mortgage, because you get a tax deduction which effectively reduces your interest rate. Also for that reason, it might make sense to put extra payments to the car loan before the mortgage (if you decide to make extra payments at all).


2
There's a lot more information here that's needed: Paying your mortgage earlier may not be the best option for you. If you have a nice income, you may enjoy the tax credit for mortgage interest. Paying it early may free up more income, but may cost you at tax time. The money you put into your equity remains yours, you may end up paying the same amount of interest in the end regardless of speed. Check your mortgage paperwork for prepayment details. How old and what kind of car? IMHO money invested into a car is money poorly invested unless its a collectable or an exotic, and even then it's a risky investment. If you are planning on retiring in 5-10 years you might consider saving and investing the $400.00 extra per month. Current reports show that most Americans do not have enough savings to provide for their future. An extra $25k or so prudently invested could be that extra cushion that you and your family needs to make your future dreams come true. Good luck! I run the Debt Reduction Foundation, Inc. If you have a problem with large unsecured debts (15k+), we may be able to help. Give me a call at 888-221-2711 and ask for the Director. If I can't help you, I'll be sure to point you in the right direction.


3
Do you have a small emergency fund? Say $500-1000? If not, set that up first. Next, use the $400 to pay off the car - it probably has a higher interest rate. Even if the home loan has a higher interest rate, pay the car first, because you can deduct mortgage interest from your income taxes, but NOT the interest on the auto loan. Once you pay off the car, make sure you have 6-9 months of expenses (not salary, not take-home) saved up for big emergencies (like getting laid-off). Finally, use any extra money to pay off the house. We paid off our $20,000 auto loan in 20 months by paying an extra $400 every month and putting bonuses and overtime towards it, too.