quote:
If he didn't have any other debt besides the car, then yes, paying it off makes sense. But he is talking about deciding which debt to pay down and the car is the lower % one.

It's a point and a half. Yes, the mortgage is over a longer term, but the car is better for cash flow AND net effect, particularly as the mortgage interest is tax deductible - that's got to be worth a point or so.

Plus, he's not going to retire the mortgage - he could retire the debt on the car.

If his mortgage was 6 or 7% and the car was a 0% APR special - maybe I reduce his mortgage - particularly if that switched off his PMI - but this analysis is far more complex than comparing APR.

This post was edited on 5/16/14 at 12:34 pm

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Posted by Lsut81

Member since Jun 2005

80218 posts

Posted on 5/16/14 at 12:40 pm to Ace Midnight

quote:
It's a point and a half. Yes, the mortgage is over a longer term, but the car is better for cash flow AND net effect, particularly as the mortgage interest is tax deductible - that's got to be worth a point or so.

I conceded that the 1.5% was prob dick over the term that is left on his car note and that for peace of mind and not having another bill, it may be worth paying off the car.

My main point was back to you saying that paying off a depreciating asset somehow saves money in this instance. The fact that it is depreciating doesn't have anything to do with what he ultimately ends up with.

The car is going to be worth the same $$$ amount whether it is paid off or you owe on it. You will still have the same principal in the end and if you are just shifting the asset to where you are paying the interest, it is a wash.

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