Using a mortgage as a car loan
Isn't it better to use a mortgage to buy a car?
Because mortgage rates tend to be lower than car finance, you might be wondering how you can use your mortgage to buy a car.
• Redraw
• Refinancing
Redrawing from your mortgage
If you're moving ahead with your mortgage payments, then you may have accumulated "stash pockets" that you can use to finance your car purchase. There are both positives and negatives to consider before doing this.
pros
Convenience. Using your home finances, you will still only have one regular loan payment, not two.
Speed – Depending on your lender, redrawing can be arranged very quickly. Unlike getting a loan from scratch, you won't need to verify income or receive credit checks.
Affordability – If you can’t afford to set aside more money to pay off your loan right now (for example, if your family has temporarily reduced income to one), reusing a mortgage can give you the opportunity to buy a car without increasing your income. minimum loan payments.
Cons
Price. While the interest rate may be lower, the size of the debt and the effect of compound interest over time means you may be paying more overall interest by financing your car through a mortgage.
However, these additional interest can be offset by additional payments.
See the example below for an illustration of how this works.
Tracking
If you want to split your expenses so you can choose what you pay off and when, adding new expenses to your mortgage will limit this.
Example
The table below shows a simple comparison of an auto loan (plus the cost of an existing mortgage) versus a mortgage refinance. This was done using a loan repayment calculator.
Redraw A: After the funds have been redrawn to buy a car, only the minimum payments are made on the mortgage. The extra cost of the car, which is not offset by any additional payments, results in an additional $11,500 in total mortgage interest over the remaining 20 years of the loan.
Redraw B: By increasing home loan payments after a car overspending, you can avoid paying higher total interest over the life of the home loan.
Other things to consider
• Your lender may charge a re-lending fee (usually nominal), set a minimum re-lending amount, or indicate that you have a minimum equity in your home (eg 20%).
• If you have not yet renegotiated your mortgage, you may need to register or set up authorization.
Refinancing your mortgage
If you're late on your mortgage and don't have the funds to refinance, you can talk to your existing or new lender about refinancing your mortgage to access the funds you need to buy a car.
It will probably take longer to organize than to redraw. Your financial situation will be reassessed, including the value of your home compared to the amount you want to borrow. This may include an inspection of the property by an appraiser.
pros
• The method of refinancing can be flexible, such as lowering the repayment amount by extending the term of the loan (but this can also increase the overall interest rate).
• Depending on your loan (and how long ago you got it), you may also get a lower interest rate or better features on current products.
Cons
• Your home lender may charge a refinancing fee. It can be as high as $500, so it's worth checking ahead of time.
• Your credit balance will increase. If you return the minimum payments, this usually results in an increase in the total amount of interest.
Other things to consider
• Most mortgage providers have penalties for repaying a loan in its early years, so keep this in mind if you're considering changing lenders.
• There are a number of different refinancing options available. Take the time to think carefully about your goals to make sure you end up with a solution that is more, not less, right for your situation!
• If you refinance to borrow more than your original loan amount, stamp duty may apply.
TIP: If you're buying a car that can't be used as collateral, you can also use your home as collateral for a loan to lower your interest rate (although be careful if you don't meet your payments!).
