As a follow-up to my previous post - these two do not compute. If you have a fixed mortgage then you can’t lower the payments, because it’s fixed. You can only move up the date it is paid off.
precisely, but possibly the OP is talking about lowering the hit on his monthly cash flow. vs. a true lowering of the payment. If the former, then using that 10,000 could indeed lower his cash outlay by 300ish a month for 33+ months; paying off the car but leaving the other 5000 intact would lower his cash outlay by 350 a month for 14 months; paying off the car and using the 5000 at 300 a month (for a total of, say, 17 months) would lower his outlay by 650 a month for 14 months, and 300 a month for another 3 months…
As you noted, there’s no way to truly lower the payment on that morgage short of refinancing it. I’ve often wished there was a way to get a mortgage-holder to lower the payment for the balance of the loan in response to a significant prepayment (say you owe 300,000, you pay down 100,000 from a windfall, can they lower the payment by roughly 1/3 for you?).
Something to think of: if you prepay the mortgage, you’re paying less in interest so less of a tax benefit, and less of a tax refund.
Anyway: If the OP is planning on staying in the house long-term, getting rid of that 50 PMI - which truly is money thrown away - would be great, and frees up 50 a month that can be used to pay down the car loan faster, then pay down the mortgage faster. However, it can be tough to get rid of PMI depending on the terms of your loan. You might have to spend money on an appraisal, which chews up 400ish dollars and still might not come back high enough to get rid of the PMI. Check the loan paperwork and find out what it would take, before you make any decisions.
If PMI can’t be gotten rid of easily, then take steps to improve your long-term costs as much as possible. To me, that means get rid of the car payment with the 5,000 dollars, keep the other 5,000 in savings for emergencies, keep paying the current mortgage, and if possible throw the 350 a month at it. In other words, you’re currently spending 2,950 a month (2,600 + 350); keep doing that if you can swing it. You can always quit paying the extra 350 if you need the cash flow.
If cash flow is an issue, actually, that’s another argument for keeping the 5,000 in reserve; that suggests you’re “on the edge” and an unexpected expense would be problematic.
OP, if you’re getting tax refunds large enough to replenish savings in the scenarios described, then your solution is simple: fix your withholding.
From your numbers, you have $300/month too much being taken out of your paycheck. If you fix the withholding to be just enough, you now have $300 right now and you can figure out where to put it without tapping into your savings.
Whatever you do, keep the cash. Don’t use it to pay off debts unless you are confident that you could lose your job, crash your car, break your leg and still have at least six months of cash to live on.