Financing question.

[richmcc]

I am not really good at figuring finances out, so I could use some help here. We are going to be refinancing our home anyways and I was wondering if it made more sense to take out enough of the loan to pay for the Sky rather then taking a car loan. We have enough equity in our property to do this.

What I would do is make a car payment of ~450 every month on top of the loan payment till the cost of the car is paid off. I looked at some scenario's in Excel and it appears by doing, this we will actually save several thousands of interests for those year as compared to taking a second mortgage for the amount minus the cost of the sky. However, usually when I try to figure something out like this I miss the obvious.

So anybody with greater mind for finances has any input it would be greatly appreciated.

[reedred]

Originally Posted by richmcc

I am not really good at figuring finances out, so I could use some help here. We are going to be refinancing our home anyways and I was wondering if it made more sense to take out enough of the loan to pay for the Sky rather then taking a car loan. We have enough equity in our property to do this.

What I would do is make a car payment of ~450 every month on top of the loan payment till the cost of the car is paid off. I looked at some scenario's in Excel and it appears by doing, this we will actually save several thousands of interests for those year as compared to taking a second mortgage for the amount minus the cost of the sky. However, usually when I try to figure something out like this I miss the obvious.

So anybody with greater mind for finances has any input it would be greatly appreciated.

A few offhand thoughts:

1. If you pay the car off in the same amount of time, there's no prepayment penalty, and your interest rate is lower than you'd get on the car alone, then it can work and may be a good idea.

2. If you decided to stop making the extra payments for some reason, you'd end up financing your car for a lot longer than you probably want and paying a lot more interest. That would be bad.

3. If market conditions changed dramatically (I know- unlikely in SoCal) and you had to sell you'd have less equity in the house but 100% equity in your car. Make sure there's enough equity left in the house to reasonably sell it and pay broker fees.

As long as none of those issues are a problem, I would do it.

[cerberus]

Taxes.
Interest on home loan deductible. Car interest not.

[agirltrucker]

Originally Posted by cerberus

Taxes.
Interest on home loan deductible. Car interest not.

Which is the exact reason we are doing that too.

[Freakazoid]

one thing to keep in mind, first i'd definitely recommend doing what you're doing, but if you're trying to build credit, having the 2 'loans' out will be better for your credit than just one.

not saying one will be bad, just 2 will be better

sorta minor, but it depends on what you wanna get out of it.

[dmbdlatc]

Call me a baby. I have my home paid off free and clear. There is NOTHING I want in this world bad enough that would cause me to bind my home to a loan. The quicker any and all incumberances were taken off my home, the quicker I like it. Call me stupid, if you want. But I will be retiring from my REAL job in 318 days at the age of 48 and owe nothing to anyone (well except the tax collector every year), and that includes my SKY when it comes in. Then I can go out and do anything I want for employement or NOTHING at all, but at least I will have the choice.

I know that there are a whole lot of people out there smarter than me. I didn't make a million bucks or hit the lottery. I was just cheap, and saved a lot. So that was my goal. Yours might be completely different

[Rick Tinley Park]

I just happened to be listening to a show Saturday about buying/leasing cars. When asked if taking a home equity loan was better than regular car financing, the answer was a resounding YES. BUT:
If you are going to re-finance don't "roll in" the car. Take a separate loan from the mortgage (as second -- or equity loan). A few reasons
1. The interest may be less than a car loan.
2. Interest is deductible and even if the interest is the same or a bit higher (generally no more than .5%) your deduction will make up for that.

The reason you don't want to roll the car loan into the house is that you will pay for the car over the life of the loan -- so if you take a ten year mortgage -- you'll be paying for that car for 10 years (and with interest lose any real savings) if you take a second -- when the car part of the mortgage is paid -- you will have a smaller mortgage payment and no longer have to pay for the car.

As far as bunding a paid home to a loan -- very good idea if you are at LEAST five years from retirement. If you are nearing retirement -- you have to really weight the cons/pros of leining your house

[Freakazoid]

i'm curious at this point if in a few months saturn doesn't start offering some lower apr rates though? if you could get like a 5% new car loan, i think that'd probably be better than combining it with your home?

[tyler07]

I looked at a few options and had a long talk with my financial advisor about all of this.
What came out of it all was the best option for me at least, was a second mortgage.

Car Loan would have been 5% for 5 years. or, as I got, my second mortgage at 5.5% for 5years and all of the interest portion is tax deductable.
He told me not to refinance and make it one mortgage cause I really don't want to pay for this car over the length of the mortgage(15years) and pay all that interest or worse be paying on a car that is long been sold, traded in, etc... but that I could make it as long as a normal car loan at 60months.

This was all thru the credit union we have here at work cause my normal bank couldn't touch the car loan or the mortgage rates. There's no fee for paying off the loan early or anything else of the sort. So it was really quite an easy decision for me.

Being a Single guy with no kids I need every deduction I can get so I can keep more of my money instead of giving it to uncle sam. It also looks alot better for your credit rating as a mortgage over a car loan so my advisor says....

[richmcc]

This is one of these reason's I love this board so much, the people on here are fantastically helpful. Once again thank you for your feedback!

[dmbdlatc]

All of that is fine financially as the bottom line is concerned. Again, (don't mean to be a pain) I would gladly pay the extra as long as the house remains untouched. If the crap hits the fan, medical problems, lay offs, etc., I don't want to loose the house over a car, a toy car at that. The plan were you make a separate loan for the car say over 60 months sounds ok, I guess you could sell the car and pay off most of that part of the loan. But rolling it all into one mortage, as stated above, does not sound like a good idea.

[stonewall]

I would use a Second or Equity line to get the sky. Beware of the interest being deductable on your taxes. Interest on Mortgages are only deductable if you have enough deductions on your Sch. A to go over the standard deduction. Now on the other hand, the Mortgage interest that you pay for adding the sky might help you qualify for the sch A on your taxes and that is a good thing. Hopefully that makes sense!

[belletire]

It can be extremely beneficial for you to do this.

I am of the school of thought that you don't pay off your home as it is (can be) a "free" loan. I would rather invest the money over that time.

Without knowing all your personal details we cannot give you definite answer. I would sit with an accountant to break down for you exactly what you need to do in order to maximize your gains.

[luvskyz]

Originally Posted by dmbdlatc

Call me a baby. I have my home paid off free and clear. There is NOTHING I want in this world bad enough that would cause me to bind my home to a loan. The quicker any and all incumberances were taken off my home, the quicker I like it. Call me stupid, if you want. But I will be retiring from my REAL job in 318 days at the age of 48 and owe nothing to anyone (well except the tax collector every year), and that includes my SKY when it comes in. Then I can go out and do anything I want for employement or NOTHING at all, but at least I will have the choice.

I know that there are a hole lot of people out there smarter than me. I didn't make a million bucks or hit the lottery. I was just cheap, and saved a lot. So that was my goal. Yours might be completely different

I worship the ground you walk on.... This is the way it should be done, my friend!! Congratulations!!! What peace of mind you will have, enjoying your retirement at a young, ripe age, roaming around in your SKY! I'm SO excited for you!!

[richmcc]

Originally Posted by richmcc

I am not really good at figuring finances out, so I could use some help here. We are going to be refinancing our home anyways and I was wondering if it made more sense to take out enough of the loan to pay for the Sky rather then taking a car loan. We have enough equity in our property to do this.

What I would do is make a car payment of ~450 every month on top of the loan payment till the cost of the car is paid off. I looked at some scenario's in Excel and it appears by doing, this we will actually save several thousands of interests for those year as compared to taking a second mortgage for the amount minus the cost of the sky. However, usually when I try to figure something out like this I miss the obvious.

So anybody with greater mind for finances has any input it would be greatly appreciated.

We met with the mortgage broker and looks like in a couple of weeks I will have the money to pay for the Sky. All of a sudden my patience went out the window and the idea of buying one of those 35k Specials with custom wheels and the over priced extas seemed very attractive!!!

I really want the car I want though! Remember BlueStone, Traction Control, Seat adjustment.

[agirltrucker]

One thing to keep in mind, any monies you take out of your house is a tax deduction, unlike a car loan.

[FaerieKitty2]

"Taxes.
Interest on home loan deductible. Car interest not."

Ok. That post scares me. Let me explain the home loan mortgage interest deduction to y'all. Mortgage interest IS deductable. HOWEVER, when you refinance, you cannot claim additional interest on the additional money you take out. So, you can't screw the IRS by buying your car with extra money in your refinance. Also, before posting tax advice, I would be VERY careful you have the right information because there is a new standard that has been set that says if someone follows that advice and reasonably relies on it, they could hold you liable for the IRS interest and penalties.

I don't mean that to sound harsh, but I just want to let you know so no one gets in any trouble or legal battles or whatever.

[FaerieKitty2]

I copied this from the IRS website (http://www.irs.gov)

"Refinanced home acquisition debt. Any secured debt you use to refinance home acquisition debt is treated as home acquisition debt. However, the new debt will qualify as home acquisition debt only up to the amount of the balance of the old mortgage principal just before the refinancing. "

Here is the link to the article http://www.irs.gov/publications/p936/ar02.html#d0e1888

[cerberus]

Originally Posted by FaerieKitty2

Ok. That post scares me...

Thank you very much for cleaning me up.
Looking at the post time, it was very late (in both wall and beer time).
I should have said -

"Check with your accountant".

Thanks again.

[FaerieKitty2]

Welcome...I don't think many people know about the whole "if u give tax advice they can sue you" ruling. LOL God knows the IRS comes up with so many rules keeping track of them all is hard to follow. :P

[agirltrucker]

Everyone can do what they want, as for me and hubby we used money out of our home and it is a tax deduction. We can write off ALL THE INTEREST WE PAID.