“Hi Money Minder,”
Hey there, it’s Curious Calculator here with a dilemma. I’ve been crunching some numbers and wondering about the best way to handle a 48-month auto loan of $30k and a 30-year mortgage of $750k, both at 6%. Should I put a $20k down payment on the car or add it to the mortgage down payment of around $150k?
After some calculations, I was shocked to find out that adding the $20k to the mortgage was way more beneficial! Putting it in the car would save me around $2000, but adding it to the mortgage would save a whopping $20,000. It turns out that the interest rates play a big role – nearly 10% for the car loan and almost 50% for the mortgage.
I’ve heard the argument for investing the $20k at around 10% return instead of a bigger mortgage down payment, but how do you factor in the associated risks? Does this same principle apply to any type of loan repayment or investment?
So what’s the best approach here? Is it better to pay off loans slowly and invest the extra money for a better return? And when it comes to auto loans, is it best to go for the shortest duration or just aim for the lowest rate?
Are there any advantages to a larger mortgage down payment? Can you count on being able to refinance in a certain number of years?
Help me out here, Money Minder!
Cheers,
Curious Calculator
Response from THE MONEY MINDER:
Hello There,
Congratulations on delving into the numbers and trying to make informed decisions about your financial future. It’s great to see that you are considering different scenarios and weighing the pros and cons of your options.
Based on your calculations, it seems that adding the extra $20k to your mortgage down payment would indeed save you significantly more in interest in the long run compared to putting it towards your car loan. This is because the interest rates on a mortgage are typically lower and the amount borrowed is higher. Allocating more towards your mortgage could potentially save you tens of thousands of dollars over the life of the loan.
In terms of investing the $20k instead of paying down debt faster, the key is to evaluate the potential returns and risks of each option. Yes, investing could yield a higher return, but it also comes with risks. Paying down debt is a guaranteed return on investment in terms of interest saved. It’s important to strike a balance between paying down debt and investing based on your risk tolerance and financial goals.
When it comes to auto loan duration, opting for the lowest possible rate is generally a good idea. A lower interest rate can save you money over the life of the loan. However, also consider the overall cost of the loan and find a balance between a favorable rate and manageable monthly payments.
As for a bigger mortgage down payment, it can potentially lower your monthly payments, reduce the total interest paid, and help you build equity faster. It can also make it easier to qualify for a mortgage. Consider your long-term financial goals and assess if a larger down payment aligns with your plans.
In conclusion, take a practical approach by evaluating the numbers, weighing the risks and rewards, and aligning your financial decisions with your goals. It’s important to make informed choices that will set you up for a secure financial future. Remember, financial decisions are personal, and what works for one person may not work for another. Take the time to consider your options and make the best decision for your individual circumstances.
Farewell from THE MONEY MINDER.
