Mortgage top up for a new car

yaffel

I am unsure whether I should I have good job security and a mortgage for 200k over 30 years on a 495k property. I want 15k more am I mad in the current climate. Would I get it I wonder hmmmm what do peeps think?

jhegarty

yaffel wrote: »

am I mad in the current climate.

Yes

mikemac

You sir are mad, said in the nicest possible way

yaffel

Im not so sure its that crazy. I mean the mortgage is a tracker Im saving 400 a month since the start of the last year. it would cost 63 per month for 15k extra I havent changed car in 8 years. Could I possibly get reasons for and against when people reply im unsure and this COULD sway me either way.

Zaph

A car loan will be paid off in 3 or 4 years, use the money you're saving on the mortgage for this instead. Adding the €15k to the mortgage means you'll effectively be paying for the car for another 30 years, long after the car is gone, and you'll basically end up paying more for the car in the long run than if you'd taken out a car loan. Even if you kept the car for 10 years, chances are you'll want to change it eventually so effectively you'll be paying two car loans. Long term debt should never be used to finance a short term asset.

yaffel

Thats more like it thanks Zaph. Im self emploed so the car loan maybe an issue. I reckon Ill sit tight for another 3 years or so. I also wouldnt be happy spending all the saving on a car loan.

Here is an alternative just sprang to mind. Add the 15k to the mortgage buy a car, use the saving of 400 a month to increase my payments shortening the mortgage to an 18 year loan rather than 30. Now thats more like it what about that on??

So get a car loan 15000k over 4 years is 380 a month leaves me with €20 a month to pay. Mortgage increase by €63 per month to fund 15000k for a car. Leaves me with €337 per month to increase payments on my mortgage shortens the term by 12 years to 18 years. Its a different way of looking at things.

3DataModem

Zaph wrote: »

Long term debt should never be used to finance a short term asset.

Excellent advice.

Don't borrow if you can help it... but if you must...
>Don't borrow for bills for more than 2 weeks.
>Don't borrow for a holiday for more than 6 months.
>Don't borrow for a car for more than 3 years.

Topping up mortgage is generally a bad idea for everything except emergency (medical) or home improvements (not repairs decoration or furniture, I mean new square footage or features).

yaffel

I wouldnt take a loan for a car, I wouldnt borrow for a holiday, wouldnt dream of it. I have no debt except my mortgage, which is ltv with the mortgage only 40% the value of the house, granted that has changed now to maybe 50%.

People remortgage to consolidate the other loans credit card, car loan, personal loan etc, all the time. It would be my opinion that rather than doing that in the future I would be better off having one big loan thats affordable rather than 2 loans that are not affordable and impinge on my lifestyle. I should also say that when I bought my house I paid for half of it with €100,000 of my own cash.

Just trying to look at things from a different perspective. People in this economy need to spend money, something tells me though it will be the spending of other nations that will pull the world out of this. Spending the cause of and solution too all of lifes problemss!!:)

seamus

Well, you just need to work out the costs really.

In the previous climate, sticking your car on your mortgage wasn't so insane because if you borrowed €20k over 30 years @ 4%, then total repayable on that part of the mortgage was €35k. But when house prices were increasing by those kinds of figures, you would have (on paper anyway), clawed back the price of your car in inflation alone, within a year.

So in that case, it made perfect sense.

But in the current climate, you'll end up paying back that €35k and probably not even get that back when you sell your house. A standard car loan @ 12.5% will only cost you €26k to pay back over 5 years, meaning that you effectively save €10k by getting a shorter loan with a bigger rate. Your only worry is deflation, which is more likely to affect the value of short-term loans than long-term ones.

My advice is to re-evaluate your need to spend that kind of money on a car. If you can eek another 12 months out of your current car, then you'll be able to get a bargain on a good spec car at that point, probably something no more than 3 years old for €10k or so. Any new cars bought this year will collapse in price; they'll easily lose 30% of their value in the next 12 months.

IsThatSo?

Zaph wrote: »

A car loan will be paid off in 3 or 4 years, use the money you're saving on the mortgage for this instead. Adding the €15k to the mortgage means you'll effectively be paying for the car for another 30 years, long after the car is gone, and you'll basically end up paying more for the car in the long run than if you'd taken out a car loan. Even if you kept the car for 10 years, chances are you'll want to change it eventually so effectively you'll be paying two car loans. Long term debt should never be used to finance a short term asset.

+1 and well put.

I wont be that polite, its plain stupidity to top up a mortgage for a car or any other short term item.

Even if you do that and use the extra 400 to increase your repayments you are still paying your car off over 18 years. What will you do when you want your next car? Get another mortgage top up.

Why not consider getting a car loan, pay it off with the 400 for 3 years and then put the 400 against the mortgage. It will work out much cheaper.

It does seem logical, on the face of it, to keep repayments low by topping up the mortgage but you will pay through the nose for it.

Having said all of the above, the final decision is yours. Just because I am anal about debt does not mean that you should be the same Do some basic maths though and work out the interest, what a 3-5 year loan would cost in interest and what an 18 or 30 year mortgage top up would cost. Then decide.

yaffel

Thanks guys this is good stuff. My thinking is this also I have a list of cars that have been repo'ed. I can buy a car retailing at 32,000 at a dealership for 15 thousand so my thinking is, drive that car for 5 years and then hopefully it would be worth 8-10k and 5 to 7 k would be the cost of an upgrade which I could afford. Dont get me wrong this is not a decision I would take lightly. The point about the house value increasing would be applicable if you did plan to sell your house but I do not. I bought it for 254k euro in 2002 and last one to sell on the road went for 510k. I have no other debt, I pay off my cc every month, I manage things well. Thats why im finding it hard to do this but with the interest rates falling and money coming I feel i could do with a nice gift and strangely so does my wife. When all come to all the bank prob wont allow me top up anyway

kenco

Yaffel

You can take out your top up for a period less than the term of the loan, i.e. you can take out say 15K at the mortgage rate for 3 years. You might need to twist the arm of the lender but this is something they can do.

Note big warning sign also: if you default on the car loan then you default on the mortgage. You have to be able to make the repayment (I know thats stating the obvious) but in theory (and unlikley) you could lose your house