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Hendog's Avatar
 
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Save for a new car or put it on the mortgage?

We have no debts other than our mortgage. We've financed our last car but paid it off in a short time. We own a 4 door sedan, a truck and the Pcar. Looking ahead, we'll need to replace the sedan since it's the primary vehicle but I figure I can easily get another ten years out of it. I'm considering putting $3-4k aside per year towards the purchase of the next car. But I'm wondering if I wouldn't be further ahead putting that money on my mortgage and financing the car when the time comes. Thoughts?

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Old 03-24-2008, 08:08 AM
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Buy car = pay money for car
Finance car = pay money for car plus interest

Pretty simple really. Unless your home loan sucks, your rate is lower on the house. So you're paying more in interest on a car than you save on your house. You're on the right track saving money for a car, then paying cash. For an added bonus, put your car fund into some sort of short term investment (CD, etc) and draw positive interest on your car savings fund.
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Old 03-24-2008, 08:23 AM
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Quote:
Originally Posted by onewhippedpuppy View Post
Buy car = pay money for car
Finance car = pay money for car plus interest

Pretty simple really. Unless your home loan sucks, your rate is lower on the house. So you're paying more in interest on a car than you save on your house. You're on the right track saving money for a car, then paying cash. For an added bonus, put your car fund into some sort of short term investment (CD, etc) and draw positive interest on your car savings fund.

+1

...and if I'm not mistaken, your guys' mortgage interest is tax deductible, making an even stronger argument.
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Old 03-24-2008, 08:28 AM
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depends on the car...there are alot that are 0% interest so there goes that argument, you work with their money rather than yours, put the $ in savings and pay them
even at 1-3% it is not that much intrest..you'd put off a new car for say 3 years to save 1500 in intrest?> bad choice especially if you have a clunker now that $1500 will be eaten by repairs and then some.

depends on the situation, car you would get and what the projection for future repair needs are
I will always work with other people's money first at a low rate rather than risk mine up front
Old 03-24-2008, 08:47 AM
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I am faced with the same predicament and I have decided to pour an extra $7000+ per year into my mortgage. I am hell bent on paying for my house in full over the next 7 years so thats a big goal for me. My car, 6 years old now, has 217,000KM on it, I figure I can get another 2 years out of it. I dont have a problem with leasing as I can write the car off as an expense for work. I would also look at the 0-3% offers as Nick had mentioned.
Old 03-24-2008, 08:54 AM
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the problem with paying off your mortgage is the fact that you will lose that tax deduction...it is a nice concept to pay off the house really fast (i am trying as well) but the deduction is/was worth it to keep me from paying the AMT
Old 03-24-2008, 09:05 AM
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I dont know the US tax system, In Canada we dont get a tax break for borrowing money.

However, if you pay off your mortgage you reduce your monthly payment to 0, Losing the tax break will cost you ???? $200/month???. Isnt that like refusing a $20,000/yr raise because you would have to pay a few thousand more in tax?
Old 03-24-2008, 09:23 AM
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Quote:
Originally Posted by NICKG View Post
depends on the car...there are alot that are 0% interest so there goes that argument
I like that idea. However I suspect you'll get a better deal on the car with cash in hand: you may save $1000-1500. Whereas if you use their financing, they are less flexible in the price.


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Originally Posted by NICKG View Post
the problem with paying off your mortgage is the fact that you will lose that tax deduction...it is a nice concept to pay off the house really fast (i am trying as well) but the deduction is/was worth it to keep me from paying the AMT

Consider us Canadians who cannot write off the interest on our mortgages.
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Old 03-24-2008, 09:28 AM
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Pay off your house ASAP and simply buy used cars with cash. The feeling of having your house paid off and not oweing anyone a god d@mn dime is priceless IMO.
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Old 03-24-2008, 09:35 AM
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Quote:
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Pay off your house ASAP and simply buy used cars with cash. The feeling of having your house paid off and not oweing anyone a god d@mn dime is priceless IMO.
This is one feeling that I wish I had. Really envious of you in having done this! Good job!
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Old 03-24-2008, 09:48 AM
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Quote:
Originally Posted by Tim Hancock View Post
Pay off your house ASAP and simply buy used cars with cash. The feeling of having your house paid off and not oweing anyone a god d@mn dime is priceless IMO.
Finally some sense!

Many people are under the assumption that "mortgage interest is deductable"...this is only partially true. Depending on your tax bracket, as low as 15% of your mortgage interest is deductable. So, if you're paying $500 per month in mortgage interest? The deduction is a whopping $75 per month.

Plus, for many folks, exchanging short term debt (car, credit card, etc.) for long term debt (adding that short term debt to your mortgage) is the beginning of the path to financial ruin. Think about it...what are you going to do when it's time to replace the car, but you're still paying on the mortgage? Would adding even more to the mortgage be wise then?

The key to financial happiness? Get yourself in a position where others pay you interest while you pay none.

Like Tim, I owe nothing. On top of that, others pay me interest. It took decades of work to achieve this, but I like to think I used financial common sense along the way.
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Last edited by pwd72s; 03-24-2008 at 09:56 AM..
Old 03-24-2008, 09:50 AM
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Quote:
Originally Posted by pwd72s View Post
...The key to financial happiness? Get yourself in a position where others pay you interest while you pay none.

Like Tim, I owe nothing....
+1. I don't mean to offend anyone, but one who "desires" a mortgage payment for the "tax benefit" must not be adept at math imo. Let's see, for every $100, I give "Mr. Banker", "Uncle Sam" will credit me with say $35 come tax time...I don't think so. I'm not wealthy, never will be, but I like PWD's idea about having..."screw you money" .
Old 03-24-2008, 10:22 AM
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NEVER, finance a car into your mortgage, stupidest move anyone can EVER make.

3-5 years from now, the car is gone and you'll be paying on it for the next 20 years.

You have 3 cars, your Porsche, a truck and a sedan. What kind of truck what kind of sedan? Dependable so far? Keep them.

Save up and buy used cars and hammer your mortgage like everyone said. Then look into a car loan, never finance a car for more than 3 years, if you cannot afford the payment on a 3 year car loan you cannot afford the car.

I am about 3 months from now I will be totally debt free again and I cannot wait!!
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Old 03-24-2008, 10:31 AM
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[QUOTE=Jim Cesiro;3846642]NEVER, finance a car into your mortgage, stupidest move anyone can EVER make. QUOTE]

I have NO intention of doing THAT!!

[QUOTE=You have 3 cars, your Porsche, a truck and a sedan. What kind of truck what kind of sedan? Dependable so far? Keep them.
QUOTE]

1991 Mazda B2200 truck with 73K Km: hauls the dogs around, does yard work and gets my wife to/ from her part time job. Low miles, runs excellent.

2002 Accord SE 4cyl (great on gas) 103K Km: gets me to/from work; grocery getter; all around transport appliance.

87 Carrera 83K Km: hobby; brings a smile to my face; to/from work accasionally.

The Honda will last another ten years at the rate I use my vehicles. I spread the mileage out over all three, but the Honda's my the dd.

We'll be mortgage free sooner than the amortization but still won't happen for maybe 13 years or so. I'll want to replace the Honda in ten maybe. It was the first NEW car I ever bought. I usually subscribe to the idea of bying used and letting someone else take the initial depreciation. In this case, I had full intention on getting my money's worth by driving it into the ground (mostly). So far after 6 years it's been a great car and will easily go another 6+, but I have to start putting something aside now for the day I want to replace it. I'm not rich, but I'm not suffering either. I don't buy to impress others, as a matter of fact I'd rather down play things usually; stay low key. The Pcar is my only extravagance, and I have it for the driving pleasure and the "tinkering" that I enjoy.
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Old 03-24-2008, 10:59 AM
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My apologies, I read your initial question then misread your following paragraph.

A Honda with 100K on it is just broken in, my Dad got 290K out of his Accord before getting rid of it and now he has a brand new Civic in its place that will probably be around for 10+ years, he had the Accord for 15 years.
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Old 03-24-2008, 11:04 AM
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One of my many (yikes) mortgages I have I can put money in and take money out, and just pay interest on what's owing. So when I save for something I dump the money into the mortgage account and keep this up for a year or two until I have the "cash" to buy the car/holiday/$4,000 an hour whore. And that keeps the interest payments down for a year or two. Sure I still have the mortgage but who cares.
Old 03-24-2008, 11:24 AM
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I wish I could have a "who cares" attitude about my mortgage. Oh wait, no I don't, because I actually want to OWN my house.

Tim, pwd, and Jim nailed it. Paying off your house should be the goal for any homeowner. Being able to write off the interest is just an excuse for borrowing, because there's no way to make the numbers support it. You pay in a bunch of money in interest, and get a little bit back on your taxes. Very logical. Paying off your house frees up a ton of cashflow, which can then be used to make more money. Not to mention the investment in your home's equity, an asset virtually guaranteed to appreciate. AND, it makes your life nearly Darwin proof.

Kudos to you guys, I'm sure it wasn't an easy road. I'm at the beginning of a 20 year fixed, which puts me with a nice paid off house before I hit 50. I plan to pay in extra as I have it, so hopefully I can shorten that further. This is all assuming that we stay where we're at, which might be a stretch. However, I should be able to create an easy $100k of sweat equity through remodeling, so even a move up shouldn't throw us off track. I cannot imagine having a paid off house, but I would sure like to.
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Old 03-24-2008, 12:02 PM
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Quote:
Originally Posted by Jim Cesiro View Post
NEVER, finance a car into your mortgage, stupidest move anyone can EVER make.
actually, the stupidest move is to cash out a 401k to buy a car. i had to slap some friend upside the head. he wanted to do this.

i would love to pay off my house. no, i would love to own a way better home and pay off that one. i am in my training home.
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Old 03-24-2008, 12:12 PM
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so is it better to pay out all your savings cash to buy a car ...rather than get 0% -say 3% and have liquid savings in case of an emergency?
Lot of people here to look up to... implaccable people with coffers of cash.
it is really nice, but that is not how most people live. I pay extra(a good amount) every month on EVERY bill...to pay them down quicker, but i also add to my savings every week. I feel uncomfortable with out at least 4 months mortgage in the bank, so i would rather pay the low interest than empty my coffers. It is just a different view really, but the 0% makes it dumb to pay cash i think.
I tend to think i am a smart person with my finances, i guess i have lots to learn (i am only 37 though)
Old 03-24-2008, 12:14 PM
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Nick, I doubt anyone on here would condone using all of your savings to pay cash for a car. Having an emergency fund (Dave Ramsey phrase) is very important when ***** happens.

It's hard to find a real vice with 0% car loans, just so you pay them off during the 0% timeframe. My only argument is that you tend to lose negotiating power when you take advantage of their financing.

Instead of paying out all of your savings to buy a car with cash, I would argue to just buy less car with cash. Most people own far nicer cars than they actually need. Sure, it's not fun to own an older car with higher miles, but it pays off in the long-run. I currently drive a '93 Saab 9000 Aero that I paid $2,200 for. It has 225k on it, but it gets me to work every day while being fairly decent to drive in the process. If I wanted I could easily get a car loan, but it's not worth it to me. In the long run, sacrifices of material things tend to pay off.

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Old 03-24-2008, 12:24 PM
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