We are planning on buying a new house. We have enough money to put a 20% down payment. We also have credit card and car payment debt that is a little less than the 20% we could use for the house. The interest rate on the card is 4.99%. The car loan is 6.4%. The home loan will probably be 6+%. Since the interest rate on the credit card is less than the rate of the home loan, would it be better to put the 20% down on the house and then try to pay off the card and car loan in a few years or would it be better to pay off the card and car loan now and and just put 5% down on the house and have to pay PMI? Or maybe something in between like pay off the card but not the car (or vice versa) and put 10% down on the house. Is there a calculator out there somewhere to calculate the cheapest route?
Thanks...
2007-09-01 16:13:04 · 7 answers · asked by jpcoder 1 in Business & Finance ➔ Credit
We are working on paying down the credit card and car loan. At current rate they should both be paid off in about 4 years.
2007-09-01 16:52:53 · update #1
Pay off the car and credit first. The interest on the house is tax deductible, where as the others are not. so 6.25% on the mortgage actually becomes (6.25% x (1-marginal tax rate (say 25%) = 4.68%. As long as your PMI is less than (6.25% - 4.68%) 1.57% of your home value it is worth paying off your other debt first.
2007-09-09 12:12:19 · answer #1 · answered by imh400 3 · 0⤊ 0⤋
I would say get out of debt first, THEN go into debt for the house. You will be able to afford a higher house payment because of the lower initial down payment, because you will have less debt. I'd pay off all the debt, then save money like mad for a few months (or a year or so). If you are paying 200/month for a car, and say 200 a month for the credit card payments, you can save up 400 a month AT LEAST. Put that into a high-interest CD or account for 6 months or a year, and you'd have a fairly hefty sum of money on your hands that you could use to pay off the car.
Less debt is a good idea. If you buy the house now, you will be putting yourself under even further. But if you wait a year after you've gotten all your other debts paid off, you're in a much better financial situation if the market shifts and your mortgage goes up. If it goes up while you're still in debt for other things, you could be looking at a foreclosure, depending on your circumstances.
Best of luck!
2007-09-01 16:30:10 · answer #2 · answered by A.P. 4 · 1⤊ 0⤋
Depending on the mortgage amount, the PMI may be enough to make it worthwhile to put the 20% down to avoid paying it. And, 20% down will make your monthly mortgage payment less.
Since neither the car or the credit card have very high interest rates, I suggest the 20% down on the house.
Here's a website that has all kinds of calculators for mortgages, auto loans and credit card debt.
Play with it a bit and I think you will agree that the 20% down on the house is the best way to go.
http://www.dinkytown.net/
2007-09-01 16:22:59 · answer #3 · answered by mister_galager 5 · 0⤊ 0⤋
I have a little bit of a different take on this.....First off, no matter what the credit card companies tell you, you never have a fixed rate...They can change it at will....Now all of a sudden they see a house payment going out, and these pricks decide to increase your interest rate.... Credit Card companies are evil. Dump the credit card.
No matter what, never ever ever ever ever, go into a home loan that is an ARM....Make sure your mortgage is fixed!!!!
2007-09-08 02:03:27 · answer #4 · answered by Art G 4 · 0⤊ 0⤋
Put the money on the downpayment. But you might start working on paying down that credit card. I don't know the balance or the credit limit but getting the debt to available limit ratio below 30% would make your credit score better and could mean a better interest rate on the house.
Just don't overbuy on the house. Keep your payment around 25% of your income.
2007-09-01 16:40:32 · answer #5 · answered by bdancer222 7 · 0⤊ 0⤋
The interest rates aren't very high on the credit card or the car, so I would go ahead and put a down payment on a house. Good luck!
2007-09-09 15:38:15 · answer #6 · answered by amaya7 5 · 0⤊ 0⤋
Get a mortgage quote with and without 20% down.
5% down may give you more favorable terms. But if you don't put down 20%, then you will be paying a premium.
Seriously sit down with a mortgage professional to look at all angles.
2007-09-02 03:58:25 · answer #7 · answered by DallasLoanGuy 2 · 0⤊ 0⤋