Actually, just the opposite, kind of. Quick background:
DW and I are both 51 and planning on ER within the next 5 years. We max out 401(k), including catch-up and make too much to fund any other tax advantaged investments. So our goal is to minimize tax and maximize after-tax savings to fund the GAP.
We have a home valued at about 400K and owe 270K. 2 years in on a 30 year loan at 3.75%. We also owe about 25K on her car and have 39 payments of $623 left, (3% loan). No other debt.
We will be here a while, so I was thinking about refinancing with enough cash out to pay off the car loan and maybe a little more to invest elsewhere. I can't shave any more off that 3.75% but can lock in the same rate with fairly low closing costs. This would provide some tax savings as the interest we are now paying on the car loan becomes tax deductible. We would also free up about 500 a month, (difference between the increased mortgage payment and elimination of the car payment), that could be socked away and grow if the market cooperates. And I could get even more cash out to invest as well.
I know I am paying 75 basis point higher on the car and I would have to wrap my head around the thought of technically still paying off THIS car for 30 more years while we will likely be buying others along the way. But the slightly higher interest rate is wiped out by the tax advantage of the mortgage debt and I like the additional cash flow.
I'm thinking it makes sense but what am I missing? Thanks much for any assistance.
DW and I are both 51 and planning on ER within the next 5 years. We max out 401(k), including catch-up and make too much to fund any other tax advantaged investments. So our goal is to minimize tax and maximize after-tax savings to fund the GAP.
We have a home valued at about 400K and owe 270K. 2 years in on a 30 year loan at 3.75%. We also owe about 25K on her car and have 39 payments of $623 left, (3% loan). No other debt.
We will be here a while, so I was thinking about refinancing with enough cash out to pay off the car loan and maybe a little more to invest elsewhere. I can't shave any more off that 3.75% but can lock in the same rate with fairly low closing costs. This would provide some tax savings as the interest we are now paying on the car loan becomes tax deductible. We would also free up about 500 a month, (difference between the increased mortgage payment and elimination of the car payment), that could be socked away and grow if the market cooperates. And I could get even more cash out to invest as well.
I know I am paying 75 basis point higher on the car and I would have to wrap my head around the thought of technically still paying off THIS car for 30 more years while we will likely be buying others along the way. But the slightly higher interest rate is wiped out by the tax advantage of the mortgage debt and I like the additional cash flow.
I'm thinking it makes sense but what am I missing? Thanks much for any assistance.
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