Buy a car or part-repay a mortgage?

M

moneybag

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I will soon be in a position to pay about €25,000 in cash off my existing mortgage, which has about 14 years to run at the current interest rate of 5%. I also hope to buy a car in the next few months. My questions are : (i) should I make the payment against the mortgage -- and borrow the money for the car, at a higher interest rate, over say, 4/5 years? or (ii) use the cash to buy the car -- even though, by doing this, I am effectively borrowing the money for the car over 14 years, but at a lower interest rate?

I'd appreciate any advice.
 
You won't be borrowing the money for the car over 14 years if you increase your monthly mortgage payments by what you would otherwise be paying in a 3/4/5 year car loan.
 
tiger said:
You won't be borrowing the money for the car over 14 years if you increase your monthly mortgage payments by what you would otherwise be paying in a 3/4/5 year car loan.
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That's exactly the answer....the question you need now to consider is how disciplined you are. If you don't continuously make the overpayment, you won't gain because the saving from the lower interest rate will inevitably be more than cancelled out by the 14 years you could end up funding the car loan over.
 
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