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.