When would it make sense to use your mortgage to buy a new car? Applying for a mortgage refinance to cover the cost of a car isn’t an optimal choice for everyone, but there are some exceptional circumstances in which it could work to your advantage.
You really do need to consider it carefully. Mortgages come with a compounding interest rate and the effects on a car loan in the long term could result in you paying much more for your car than if you paid it off within a shorter period.
So, why consider refinancing your home loan for the new car?
Well, there are three scenarios.
The first is if, at a quick glance, you see that your interest rates on your home loan are lower than the car loan you applied for. But we’ve already dispelled this belief, by explaining the effect of compound interest rates. When you combine them, you’ll be paying your car over a period of 25 to 30 years, instead of the 3 to 5 years, it will take with a separate car loan. So don’t rely on comparing interest rates.
The second situation is if you think you really can’t secure a car loan any other way. But before you refinance your home, speak to financial advisers who might be able to assist. If it really is your only option, then be aware of the financial consequences of compound interest rates.
Finally, there is one situation in which combining your home loan with your car finance would be advantageous.
If you have a really strong financial profile and disciplined approach to money, this option could be to your benefit. But you would need enough surplus income to boost your mortgage payments.
If you can significantly increase your mortgage repayments with surplus income, then having your debt consolidated in one place may be convenient for you. If you’re in a healthy financial position, don’t have any other debts or don’t need to take out loans for anything else, then you might be able to enjoy the benefits.
Based on this information, you’ll have a better idea of whether you’re in a position to combine your home and car loans or re-mortgage your home loan to buy a new car. What’s most important is that you speak to a financial advisor, as well as getting in touch with a car loan broker who can help you to work it out in detail.