Re-mortgage to free up equity & purchase a car?

[cragswinter]

The initial message was deleted from this topic on 17 February 2010 at 22:42

[Tiggsy]

Are your parents expecting the loan to be re-paid? if they are i'd start with asking them! I'd be very embarrassed to have borrowed money then borrow MORE money because i don't like my £20k car! And if it were my kids I'd question their priorities.

[amir_j]

cragswinter said:

I am single & live in the house by myself... any ideas guys??

yes, get a gf.

[prand]

I would say no, but then I am old and have different priorities. I reckon that you should focus on your relatively expensive, short term debt before eating up the equity in your house.

Is this a flashback from the early noughties? Different situation, but:

I seem to remember people extending their mortgages and going out and buying brand new X3s and plasma tellies on the proceeds. When it all started to get a bit hairy with their jobs & the economy they then went crying to the dealership paying them to take their cars off their hands because the car was worth less than the finance.

Then when they needed to sell their house they had no equity to speak of and were thoroughly screwed because they'd pissed up a whole decade with nothing to show.

Edited by prand on Tuesday 16th February 16:58

[bogwoppit]

For me it would depend on your age, likely earning pattern from now until retirement, how quickly you could save versus pay off the loan, etc. If you're relatively young and will not struggle to pay off the mortgage and built up a good pension, it seems unlikely to get you into trouble. So then it's just a case of whether you want the car now more than you want it cheaply. It's clear that it'll cost you more in the long run, but you have your life to think about too.

One point though: I don't know what finance arrangement you have for your current car (sounds like a straight loan), but if your mortgage is cheaper than the loan it may be worth paying it off with your equity, regardless of what you do with the car.

[TomBoo]

If you have money in the business for emergencies, and your borrowings are around 50% LTV of your home then you are in a relatively secure position.

Certainly, mortgage finance is the cheapest way of borrowing (currently)

But, you have to bear in mind that if anything goes wrong with the business, or you fall ill, etc, if all your debts are secured on your home you increase the risk of being unable to pay the mortgage.

Feel free to PM me for no obligation advice.
Tom

[Eric Mc]

I would never use lomg term debt to finance short term assets. It's the road to disaster.

[JQ]

TomBoo said:

Certainly, mortgage finance is the cheapest way of borrowing (currently)

Not really, surely remortgaging is the most expensive way to buy a car.
If borrowing £25k:
5 year loan at 8.5% (Blackhorse) costs £5,500
Remortgage over 23 years (a guess) at 3.5% costs £12,000

[bogwoppit]

JQ said:

TomBoo said:

Certainly, mortgage finance is the cheapest way of borrowing (currently)

Not really, surely remortgaging is the most expensive way to buy a car.
If borrowing £25k:
5 year loan at 8.5% (Blackhorse) costs £5,500
Remortgage over 23 years (a guess) at 3.5% costs £12,000

I really don't see why he has to pay it back over 23 years - he already said he intended to overpay. If he can afford the repayments on a higher APR over 5 years, he can afford to pay less over 5 years on his mortgage. It'd be just as fair to compare to a 23 year loan at 8.5%: 32k in interest.

[1JEB]

I think you've got too choices:

1) Borrow more (mortgage, credit cards, loans) and "buy" a proper car and enjoy it

2) Borrow more (mortgage, credit cards, loans) and "buy" something that you think will actually appreciate in value by more than the finance cost.

Depends whether you want to drive a nice car now and accept you'll probably spend the rest of your life paying money to other people, or whether you want a more prosperous life.

Sounds like you're dead set of leveraging yourself up, so might as well use it to your advantage!

Just my 2c...

[bogie]

Eric Mc said:

I would never use lomg term debt to finance short term assets. It's the road to disaster.

nothing more true than that ...seems ludicrous to me too

[amir_j]

Eric Mc said:

I would never use lomg term debt to finance short term depreciating assets. It's the road to disaster.

efa

[Stablelad]

Pay your Parents back before purchasing any large-cost/unnecessary items.

[amir_j]

cragswinter said:

I'm self employed & business is fine.

Just make sure you have considerd the worst/extreme case scenarios

[TomBoo]

Eric Mc said:

I would never use lomg term debt to finance short term assets. It's the road to disaster.

I agree. Re the long term debt part anyway.

I would never suggest financing a depreciating asset like a car over a long period, and certainly never on an interest only basis.
Nor am I suggesting re-mortgaging for such a purpose.

BUT there is nothing wrong with borrowing SHORT TERM using a property as security, providing the proposed loan is affordable, and adequate provision is in place in case of mishaps etc.

For example, if a client has a small mortgage in relation to the value of his property, it is perfectly possible to take out a further advance [say over 3 years to buy a car] from his existing lender at favourable rates compared to other forms of finance and with either nil or minimal admin costs.

And provided the further loan was on a repayment basis and paid off within the agreed period this could still be the cheapest way to borrow in the short term.

[skeeterm5]

cragswinter said:

Right I currently own a car worth 20k with around 11k still owed on it.my house is worth circa 200k & I owe less than 50% of it (my mortgage is circa 39k & my parents gifted (loaned ) 50k towards the purchase price.
I've considered freeing up some equity in the house to treat myself to a new car or to pay off the car loan in full.
I'm self employed & business is fine. The idea is that in the future as I take dividends from the company I'll gradually chip away at the mortgage 1st then my parents loan.
I understand that borrowing on the mortgage is expensive in the long run but as I've stated I don't intend it to be a long running loan. As the mortgage is cheap in the short term it would allow me to free up some money to treat myself (I'm looking at low drepreciating rare cars to lesten the financial waste) while still keeping a relatively low mortgage monthly repayment.

Currently my mortgage repayments are £260 PCM & my car loan is roughly the same. By adding 10k my mortgage provider is asking a further £60 PCM, 20k would be roughly double that.

Any reason why this would be a particulary stupid thing to do? I do have savings of roughly 10k in the business but I would not want to go below this level in case the business ever needed extra funding for any unforseen circumstances.

I am single & live in the house by myself. The property is in my name alone, any ideas guys??

IMHO it is nothing short of madness to finance a car through your mortgage......

S

[skeeterm5]

Tonker, I agree, **IF** you can show me a 2.5% fixed mortgage with no prepayment penalties then I will bite your hand off..........

S

[bogwoppit]

True, mortgage rates will rise. But to the level of personal loans? To pay more interest over a few years on his mortgage than the flat rate 8.5% quoted above would be extreme to say the least.

But good points raised about paying your parents back.

[cragswinter]

Thanks so much for all the comments guys,want to clear up a few things regarding what I said:

the idea is to increase the amount I would pay back into the mortgage to cover the extended amount,ie pay off an additional £1000 every 3 or so months.this would then give me the car loan at a cheaper level of finance.
However as stated although I'm looking at cars that look as though they're at the bottom of their depreciation curve none of us has a crystal ball so values can go up or down. Also the car could get written off damaged etc so there is some ellemant of risk there.

On another point that most have brought up, I didn't want to ask the question outright but I do have big doubts over whether it would be the right thing to do by borrowing more money when I already owe. Moral questions on ph?whatever next!

Now if I was extending the mortgage to for instance renovate the property I wouldn't feel so bad as I'd feel I was speculating on increasing the value of the house,however I'm always going on how people shouldn't buy cars as investments yet here I am asking the question on here! Got to admit it kind of leaves a sour taste increasing my borrowing without paying the olds back 1st

think I have my answer I suppose but there you go. The other problem is it's all very easy to "intend" to pay off the mortgage loan at 3 or 4k a year but if I fell behind on that it wouldn't take long for it to end up costing more than my straight repayment
thanks again for reading
crags

[Stablelad]

You're obviously quite a smart chap. That new car you want to buy?....your Parents will be paying for it. Sort this so that it's right for them first.