Extra $1000 in many months between now and May 2020.

[nidena]

With my debts as such, where does it make more sense to put any extra money, as far as pay downs? I'm talking an extra $1000 for each of Oct, Nov, Dec 2018; Mar-Dec 2019; then Mar, Apr, May 2020.



Mortgage $127,000 3.5% (15 years began April 2018 with refinance from 30-year; will be in it until May 2020, for sure; will own it until 2022, possibly)

Vehicle $30,000 5.49% (6 years began May 2018; it's a 2018 Honda...I'll have it for a couple decades )

New HVACs  $22,500 9.9% (10 years begins October 2018)

Not debt:
Mutual fund/EF $3008
Traditional IRA $11,100
Roth Annuity $5300
Misc savings: $700

Income:
Military pension $1600/mo (after taxes)
Military disability $1600/mo (not taxed)

The extra is my GI Bill housing stipend $1600 ($600 was going to go into the Mutual fund until balance is $6000, then the Traditional)

[The Walk of the Penguin Mich]

The HVAC.

[CCL]

That Honda loan seems high. Could you get a better rate to lower the payments?

[Lizard Queen]

Yeah, definitely the HVAC.

[hoops902]

The very basic answer is "Put it toward the debt with the highest interest rate", so the HVAC.  

[nidena]

Sept 29, 2018 19:39:30 GMT -5 CCL said:

That Honda loan seems high. Could you get a better rate to lower the payments?

I could try for a better rate but all the calculators that I've plugged numbers into show a savings of only $25-$30/mo

[nidena]

The flip side of the question is: Do I just make the payments and put everything in savings with the idea that I'll pay the house stuff off when I sell the house?

I do plan to refi the Honda at some point but not until I can net a payment that is $400/mo or less.  It's currently $499/mo.

[Deleted]

Sept 29, 2018 21:01:08 GMT -5 nidena said:

Sept 29, 2018 19:39:30 GMT -5 CCL said:

That Honda loan seems high. Could you get a better rate to lower the payments?

I could try for a better rate but all the calculators that I've plugged numbers into show a savings of only $25-$30/mo

$30 month, every month, for 6 years.  That's a lot of money to pay extra for no reason if you'd qualify for a lower rate.  

[resolution]

Sept 29, 2018 21:03:02 GMT -5 nidena said:

The flip side of the question is: Do I just make the payments and put everything in savings with the idea that I'll pay the house stuff off when I sell the house?

I do plan to refi the Honda at some point but not until I can net a payment that is $400/mo or less.  It's currently $499/mo.

You are paying a lot more on the HVAC than you can anticipate earning in your savings. It makes a lot more sense to me to put extra money into the HVAC rather than building up savings, unless you don't have any emergency fund. If you don't have an emergency fund, I would put the first $1000 into the emergency fund before starting to focus on the HVAC.

[nidena]

Sept 29, 2018 21:08:15 GMT -5 resolution said:

Sept 29, 2018 21:03:02 GMT -5 nidena said:

The flip side of the question is: Do I just make the payments and put everything in savings with the idea that I'll pay the house stuff off when I sell the house?

I do plan to refi the Honda at some point but not until I can net a payment that is $400/mo or less.  It's currently $499/mo.

You are paying a lot more on the HVAC than you can anticipate earning in your savings. It makes a lot more sense to me to put extra money into the HVAC rather than building up savings, unless you don't have any emergency fund. If you don't have an emergency fund, I would put the first $1000 into the emergency fund before starting to focus on the HVAC.

I addressed savings in my OP but you might have read it too quickly.

[haapai]

Yes, the HVAC is the answer to the question that you asked.  It's definitely the answer to which debt makes the most sense to pay down. 

Here's the unsolicited advice.

It may be worth your while to crank out some debt amortization tables and do some testing of where your balances will be in May 2022 if you apply the extra money to different debts.  Doing so will answer any questions that you may have regarding whether applying the extra money to the automotive debt will get it paid off by that critical date.  If you hadn't mentioned the mortgage refinance, which I am assuming means that you have twenty percent equity in the house, I would also recommend doing the same exercise with the mortgage balance.  Bear in mind that the HVAC debt will need to be paid off when the house is sold. 

Your debt payments seem to be consuming a pretty high percentage of the income that you have mentioned and they all seem to have originated recently.  Perhaps a more thorough investigation of what money is coming in and where it is going is warranted. 

ETA:  I'd also recommend annualizing that 9.9% for the purpose of comparing it to investment returns. 

[resolution]

Sept 29, 2018 21:10:37 GMT -5 nidena said:

Sept 29, 2018 21:08:15 GMT -5 resolution said:

You are paying a lot more on the HVAC than you can anticipate earning in your savings. It makes a lot more sense to me to put extra money into the HVAC rather than building up savings, unless you don't have any emergency fund. If you don't have an emergency fund, I would put the first $1000 into the emergency fund before starting to focus on the HVAC.

I addressed savings in my OP but you might have read it too quickly.

I just noticed the retirement accounts, and the misc savings didn't register. I would take the first month of extra $1000 and add it to misc savings, and then start putting it on the HVAC. A guaranteed 9.9% return is better than almost any other investment.

[nidena]

Sept 29, 2018 21:06:24 GMT -5 minnesotapaintlady said:

Sept 29, 2018 21:01:08 GMT -5 nidena said:

I could try for a better rate but all the calculators that I've plugged numbers into show a savings of only $25-$30/mo

$30 month, every month, for 6 years.  That's a lot of money to pay extra for no reason if you'd qualify for a lower rate.  

Well, I also wanted to give my credit a bit of a breather since it was Mortgage refi in April, Vehicle loan in May, HVAC financing in August.   Dropped 90 points since April when it was 810. 

[The Walk of the Penguin Mich]

Sept 29, 2018 21:03:02 GMT -5 nidena said:

The flip side of the question is: Do I just make the payments and put everything in savings with the idea that I'll pay the house stuff off when I sell the house?

I do plan to refi the Honda at some point but not until I can net a payment that is $400/mo or less.  It's currently $499/mo.

So you are going to pay $2000/year interest on the HVAC for the next few years.  Are you really ok with that?  

[nidena]

Sept 29, 2018 21:12:08 GMT -5 haapai said:

Yes, the HVAC is the answer to the question that you asked.  It's definitely the answer to which debt makes the most sense to pay down. 

Here's the unsolicited advice.

It may be worth your while to crank out some debt amortization tables and do some testing of where your balances will be in May 2022 if you apply the extra money to different debts.  Doing so will answer any questions that you may have regarding whether applying the extra money to the automotive debt will get it paid off by that critical date.  If you hadn't mentioned the mortgage refinance, which I am assuming means that you have twenty percent equity in the house, I would also recommend doing the same exercise with the mortgage balance.  Bear in mind that the HVAC debt will need to be paid off when the house is sold. 

Your debt payments seem to be consuming a pretty high percentage of the income that you have mentioned and they all seem to have originated recently.  Perhaps a more thorough investigation of what money is coming in and where it is going is warranted. 

ETA:  I'd also recommend annualizing that 9.9% for the purpose of comparing it to investment returns. 

I'm not sure how I could get any "more thorough" with income and outgo.  But I would love some input on post 5316 where I went all in-depth for the WIRR folks.  I didn't get any input but I welcome it and will even do my best to not get defensive about my "Misc" spending.

I don't know what you're saying in your ETA.  

[nidena]

Sept 29, 2018 21:15:37 GMT -5 The Walk of the Penguin Mich said:

Sept 29, 2018 21:03:02 GMT -5 nidena said:

The flip side of the question is: Do I just make the payments and put everything in savings with the idea that I'll pay the house stuff off when I sell the house?

I do plan to refi the Honda at some point but not until I can net a payment that is $400/mo or less.  It's currently $499/mo.

So you are going to pay $2000/year interest on the HVAC for the next few years.  Are you really ok with that?  

Nope.  That's why I'm asking for input.

[haapai]

What I'm trying to say is that the return on paying down HVAC is higher than 9.9% a year.  The .825% interest that you are paying on the balance each month compounds. 

Unfortunately, I'm using a device with very limited math functions and can't calculate what the annualized rate of return for paying down the HVAC actually is.  Perhaps someone else on this thread will volunteer it. 

[giramomma]

Actually, what I would do is take the full 1600 a month and save up to buy a new to you car a year from now. You should be able to get a decently reliable car for that amount of money.

This would free up the car payment a month.

So, Oct-Dec 2019 and March April May 2020 I would pay the 1600+250 from no more car loan to HVAC. (Other 250 would go into savings).

How much equity do you have in your house?

ETA: When you move, is your intention to own a house? I probably wouldn't if you have minimal savings. Houses are expensive to maintain, even if the mortgage is cheaper than rent.

[nidena]

Sept 29, 2018 21:48:24 GMT -5 giramomma said:

Actually, what I would do is take the full 1600 a month and save up to buy a new to you car a year from now. You should be able to get a decently reliable car for that amount of money.

This would free up the car payment a month.

So, Oct-Dec 2019 and March April May 2020 I would pay the 1600+250 from no more car loan to HVAC.

How much equity do you have in your house?

No go on getting a new car.  I love my purple HRV.  I've waited three years to get this car and it's not leaving my ownership until it can't move any longer which should be in 20 to 30 years.  Granted the rate isn't what I wanted but there's a lesson learned in that one and I'll deal with the financials but I'm not getting rid of the car.

My mortgage is 84% LtV.

ETA: No, I plan to never own a house again.  I've owned two, in series, over the past 19 years and I won't do it again.  My next residence, in a different state, will be at an awesome apartment complex with great amenities.

[giramomma]

Sept 29, 2018 21:55:01 GMT -5 nidena said:

Sept 29, 2018 21:48:24 GMT -5 giramomma said:

Actually, what I would do is take the full 1600 a month and save up to buy a new to you car a year from now. You should be able to get a decently reliable car for that amount of money.

This would free up the car payment a month.

So, Oct-Dec 2019 and March April May 2020 I would pay the 1600+250 from no more car loan to HVAC.

How much equity do you have in your house?

No go on getting a new car.  I love my purple HRV.  I've waited three years to get this car and it's not leaving my ownership until it can't move any longer which should be in 20 to 30 years.  Granted the rate isn't what I wanted but there's a lesson learned in that one and I'll deal with the financials but I'm not getting rid of the car.

My mortgage is 84% LtV.

Why did you refinance your house to a 15 year loan? Presumably, that reduced cash flow, which is something you need now.

I wouldn't count on you selling the house and being able to pay off the HVAC.

Unless you experience some sort of huge housing run up in the next few years..you may walk away still owing on the HVAC.

If you aren't moving on the car, then I would save all the cash. You'll need first/last month rent+ security deposits when you move. You'll need a cushion if more things go wrong between now and when you sell. You aren't in a position, really, to take on more debt.

Paying down all the debt now may reduce your future flexibility. That's not something I would chose when you are looking at an unknown. 

[nidena]

giramomma, I think you missed my edit.  I'll never own a house again.  I've owned two, as a single person, in series, in the past 19 years.

The previous property manager of my current house did a lot of workarounds that weren't easily discernible when I first bought the house in 2006 for $182,500.  I think it was worth $110,000 in 2007.  

Until 2016, I was Active Duty and making more than I am currently.  I refi'd in 2012 to reduce the interest from 6.375% to 4.5% and then again this past Spring.  It appraised at $144,000 and the refi amount was $130,000.  I refi'd to take advantage of the interest savings.  In my 30-year mortgage payment, only 25% was going towards principal.  In this current payment, 52% is going towards principal.  I don't care if I make a profit when I sell.  That's not the goal for me.

The miscellaneous savings is my Moving 2020 fund.

[nidena]

Additional info:
I'm only in my 40s.
I'm a full-time student (hence, the GI Bill stipend).
I make extra income as a tutor at the school.  Nothing big, about $60/mo but I like that I don't have to actually go anywhere for the job since it takes place at the college that I attend.
I have a part-time job where I work another 10-20 hours a month so that's another $90-$180 a month.  Next fall, I anticipate being able to work more because I will be taking only the Grad school classes rather than Undergrad and Grad school like I am/will until May 2019.
I expect to receive $750 for my book stipend this term and another $250 in the Spring (GI Bill allocates $1000 every academic year)
Until/less Congress deems otherwise, my pension and disability won't change until I die.  I'm in good health and will be able to work full time once school is done.

[Peace77]

If you save $30/month on the 67 months remaining on your car loan that's $2,010.
I would do it. Surely, you could find something else to do with 2 thousand dollars.

There are schools of thought for paying off debt, one says to pay the highest interest rate debt first, the other says to pay the smallest balance first. In either case, your HVAC Debt would be paid off first.

[NoNamePerson]

Sept 29, 2018 21:01:08 GMT -5 nidena said:

Sept 29, 2018 19:39:30 GMT -5 CCL said:

That Honda loan seems high. Could you get a better rate to lower the payments?

I could try for a better rate but all the calculators that I've plugged numbers into show a savings of only $25-$30/mo

If only those two words didn't exist!! I tend to think like minnesotapaintlady on this. Think of it as adding $25 or $30 to the $1,000 you have coming over the months you listed. It will only reduce one debt just a little more a little faster 

[The Walk of the Penguin Mich]

Sept 29, 2018 21:21:26 GMT -5 nidena said:

Sept 29, 2018 21:15:37 GMT -5 The Walk of the Penguin Mich said:

So you are going to pay $2000/year interest on the HVAC for the next few years.  Are you really ok with that?  

Nope.  That's why I'm asking for input.

Then there is your answer.  For an HVAC system, it is not going to add $22K in value to your home so it's not that you'll get the money back there.  You are already at 84% LTV on your mortgage, which means when you sell it you *might* break even  (considering you are planning on only being in it another 2-4 years) and you'll still have 6 years to pay the $22K on an HVAC in a house you will no longer have.

According to my calculations, you'll have thrown an additional $16,000 if you throw $1000 at it each month you get your housing stipend, plus what your regular payment is.  So you could easily have it paid off before you plan on selling.

BTW.....I hope you have bought gap insurance on your vehicle.  With a $30K loan, I'm not sure how much you put down but you are likely going to be upside down on it for at least your first 3 years of car payments.

[phil5185]

With my debts as such, where does it make more sense to put any extra money, as far as pay downs? I'm talking an extra $1000 for each of Oct, Nov, Dec 2018; Mar-Dec 2019; then Mar, Apr, May 2020.

Mortgage $127,000 3.5% (15 years began April 2018)
Vehicle $30,000 5.49% (6 years began May 2018)
New HVAC $22,500 9.9% (10 years begins October 2018)

I would stop accelerating the pay-downs - and rearrange your funds so that they work for you efficiently - always apply your money to its highest and best use.
Eg, the house. If you refi'd that $127k back into a 30 yr loan, that would lower the payments by $330/m ($4000/year.) That extra $4000 could be applied to the 10% HVAC note, and would pay it in about 3 1/2 years (at no extra cost to you, your monthly payments would not increase.)

What are your Mutual fund and your TradIRA invested in? At your age it's important to st y invested in low fee, high return funds - such as an SP500 Index, they have an average return of 11%/yr and the fees are down in the 0.1% range. Eg, if you invest $5000/yr at 11% for 25 years, that is $635,000. The point - don't spend your working capital to pay off small loans, instead invest your money where it will work for you. An example of that - don't use extra money to prepay a 5.5% car loan when you could use that money to earn 11%.

[nidena]

Sept 30, 2018 13:48:48 GMT -5 The Walk of the Penguin Mich said:

Sept 29, 2018 21:21:26 GMT -5 nidena said:

Nope.  That's why I'm asking for input.

Then there is your answer.  For an HVAC system, it is not going to add $22K in value to your home so it's not that you'll get the money back there.  You are already at 84% LTV on your mortgage, which means when you sell it you *might* break even  (considering you are planning on only being in it another 2-4 years) and you'll still have 6 years to pay the $22K on an HVAC in a house you will no longer have.

According to my calculations, you'll have thrown an additional $16,000 if you throw $1000 at it each month you get your housing stipend, plus what your regular payment is.  So you could easily have it paid off before you plan on selling.

BTW.....I hope you have bought gap insurance on your vehicle.  With a $30K loan, I'm not sure how much you put down but you are likely going to be upside down on it for at least your first 3 years of car payments.

Yes, I bought gap insurance.

[hoops902]

Sept 29, 2018 21:26:29 GMT -5 haapai said:

What I'm trying to say is that the return on paying down HVAC is higher than 9.9% a year.  The .825% interest that you are paying on the balance each month compounds. 

Unfortunately, I'm using a device with very limited math functions and can't calculate what the annualized rate of return for paying down the HVAC actually is.  Perhaps someone else on this thread will volunteer it. 

Yes, though the same goes for all of the other items as well if people are just quoting APR instead of APY.  The math would work out to 9.9% APR translating to 10.36% APY.

[nidena]

Sept 30, 2018 14:39:53 GMT -5 phil5185 said:

With my debts as such, where does it make more sense to put any extra money, as far as pay downs? I'm talking an extra $1000 for each of Oct, Nov, Dec 2018; Mar-Dec 2019; then Mar, Apr, May 2020.

Mortgage $127,000 3.5% (15 years began April 2018)
Vehicle $30,000 5.49% (6 years began May 2018)
New HVAC $22,500 9.9% (10 years begins October 2018)

I would stop accelerating the pay-downs - and rearrange your funds so that they work for you efficiently - always apply your money to its highest and best use.
Eg, the house. If you refi'd that $127k back into a 30 yr loan, that would lower the payments by $330/m ($4000/year.) That extra $4000 could be applied to the 10% HVAC note, and would pay it in about 3 1/2 years (at no extra cost to you, your monthly payments would not increase.)

What are your Mutual fund and your TradIRA invested in? At your age it's important to st y invested in low fee, high return funds - such as an SP500 Index, they have an average return of 11%/yr and the fees are down in the 0.1% range. Eg, if you invest $5000/yr at 11% for 25 years, that is $635,000. The point - don't spend your working capital to pay off small loans, instead invest your money where it will work for you. An example of that - don't use extra money to prepay a 5.5% car loan when you could use that money to earn 11%.

I planned on doing another refi back to a 30 in 2020.  I did the refi to the 15 to accelerate the equity buildup.
My TradIRA is in a "Cornerstone Moderately Aggressive Retail"
The Mutual Fund is just a money market aka glorified savings account.

I do hear what you're saying about doing another refi but I'd like the dust to settle on this one until after I take care of 2018s taxes.  I know rates are increasing but that's just something that I'll have to deal with for now.

[nidena]

I'm not an active investor so most of that language is foreign to me.