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Old 05-18-2009, 05:40 PM
 
Location: Lots of sun and palm trees with occasional hurricane :)
8,293 posts, read 15,156,095 times
Reputation: 6987

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I have a fixed 30 yr. mortgage @ 5.625%. I have about 23 yrs. to pay on it but I always pay a little more hoping to finish sooner.
My car is 10 yrs. old and in extremely good shape but I may have to hand it down and have to get another one for myself.

I called my current lender today just to get ideas. I have no clue what he was talking about and he was very, very fast with his explanations.

I would like $25K after all is said and done (I'm not looking for a luxury car but a dependable one). Depending on 30 or 20 yrs, my monthly payments would increase from $60 to about $300 more/mth. I'd go for the 30 yr and amortize for 25 or 20 but with 30 I have flexibility. Taxes and HOI are separate of course.

There would be approximately $2900 closing costs. My rate would be probably about 4.7% with a plus/minus APR of 4.99%?????

Is it really stupid to refinance or am I better off with a normal car loan? Monthly payments would probably run $350 - $400 depending on 48 or 60 mths. I'm a little bit afraid of that since we never know what HOI could go up to in Florida if there is another hurricane, or if I ever lose my job. I haven't had car payments for a few years now and it kills me to think of having them again.

BTW...my lender was Countrywide, now B of A. The loan officer was saying that I'm better off staying with them (cause I said I wanted to shop around) because my closing costs etc would be lower and I wouldn't need reserves. Is that true?

Thanks for any suggestions!
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Old 05-18-2009, 06:34 PM
 
Location: A little suburb of Houston
3,702 posts, read 16,870,521 times
Reputation: 2075
It's not really stupid, it is incredibly stupid. You would be financing the cost of a vehicle who's value would decline right off the floor and keep declining for a period of 30 years. If you get a car loan, you are only financing that for 3-4 years. The difference in interest you would end up paying is humongous (no I'm not going to calculate it) and would probably end up equalling the cost of another new car in the long run. That was exagerating a bit, but it is a significant amount to pay for a depreciating item. Get a regular car loan. Next time when you have paid off the car, keep making payments into a savings account, roll it into CDs or some other investment tool and you will be able to pay cash for the next car, possibly with some change left over. Worked for me. Another alternative is to keep the old car and get that savings account going or buy a good used car. 10 years isn't that bad as long as it runs and if you can keep it going for 3-4 more years while saving, you will have the cash.
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Old 05-18-2009, 07:03 PM
 
Location: Plano, Texas
1,675 posts, read 6,615,436 times
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First of all, it would not necessarily be stupid as above poster said. He/she is making an assumption that i will cover in a moment.

first of all, many car manufactures are offering 0% financing for vehicles, if you can get that than forget about pulling equity out of your home. still refinance to the lower rate, but if you can get a car loan at 0%, take it.

Next, if you cant get 0% find the best rate you can get if it is less than the mortgage rate less your tax deduction, go with the auto loan. For example, if your current loan is a 5% and you are in a 25% tax brachet, than your net effective mortgage rate is 3.75%. any car loan equal or less go with car loan. If the car loan will be higher consider pulling the equity out.

Now, to cover why poltracker made a wrong assumption. Who says you will be paying the car loan for the life of the mortgage. For example, lets say your current mortgage payment is $1200 and a car loan would be $400 per month for lets say 60 months. if you pulled the equity out of the home and just had a mortgage for the total, the new payment would be lets say $1260.(i am using the numbers you provided) what you can do is act like you have a car payment and just send extra to the mortgage. Before, your payment was 1200 +400 for the car, now only 1260 but if you send an extra 340 per month for 60 months, it would be like you financed a car and paid it off during the 60 months. So, not necessarily stupid. and now all the interest you are paying is tax deductible.

I agree, go with a 30 year mortgage but pay faster. that way if something bad happens and you lose income you can go back to a 30 year payment and if nothing bad happens you can pay the 30 year off anytime you like. This stategy allows you to prepare for worst case scenerio but still strive for best meaning pay the home off faster.

shop around. today 30year fixed rate mortgage for clients with 740 scores were at 4.625%.
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Old 05-19-2009, 04:25 AM
 
Location: Lots of sun and palm trees with occasional hurricane :)
8,293 posts, read 15,156,095 times
Reputation: 6987
Quote:
Originally Posted by Poltracker View Post
It's not really stupid, it is incredibly stupid. You would be financing the cost of a vehicle who's value would decline right off the floor and keep declining for a period of 30 years. If you get a car loan, you are only financing that for 3-4 years. The difference in interest you would end up paying is humongous (no I'm not going to calculate it) and would probably end up equalling the cost of another new car in the long run. That was exagerating a bit, but it is a significant amount to pay for a depreciating item. Get a regular car loan. Next time when you have paid off the car, keep making payments into a savings account, roll it into CDs or some other investment tool and you will be able to pay cash for the next car, possibly with some change left over. Worked for me. Another alternative is to keep the old car and get that savings account going or buy a good used car. 10 years isn't that bad as long as it runs and if you can keep it going for 3-4 more years while saving, you will have the cash.
Thanks for your perspective. It would have been nice to be able to save like if I still had a loan payment so that I'd have the cash now. Unfortunately, I wasn't planning on my HOI going to $3800, then $5700, then $6500/yr. Now it's back to $2400 and change.

Sometimes things come up.... like right now I have to get a roofer because all of a sudden it's raining inside my foyer from yesterday's rainstorms.

Get the idea? So...a monthly car payment is scary because I need some play money for emergencies, which do happen.

If I could keep my car, I would. I won't buy used. I'm not going to inherit somebody else's headaches.

I do understand the depreciating factor and it scares me but it may be the only choice.
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Old 05-19-2009, 04:30 AM
 
Location: Lots of sun and palm trees with occasional hurricane :)
8,293 posts, read 15,156,095 times
Reputation: 6987
Quote:
Originally Posted by VictorBurek View Post
First of all, it would not necessarily be stupid as above poster said. He/she is making an assumption that i will cover in a moment.

first of all, many car manufactures are offering 0% financing for vehicles, if you can get that than forget about pulling equity out of your home. still refinance to the lower rate, but if you can get a car loan at 0%, take it.

Next, if you cant get 0% find the best rate you can get if it is less than the mortgage rate less your tax deduction, go with the auto loan. For example, if your current loan is a 5% and you are in a 25% tax brachet, than your net effective mortgage rate is 3.75%. any car loan equal or less go with car loan. If the car loan will be higher consider pulling the equity out.

Now, to cover why poltracker made a wrong assumption. Who says you will be paying the car loan for the life of the mortgage. For example, lets say your current mortgage payment is $1200 and a car loan would be $400 per month for lets say 60 months. if you pulled the equity out of the home and just had a mortgage for the total, the new payment would be lets say $1260.(i am using the numbers you provided) what you can do is act like you have a car payment and just send extra to the mortgage. Before, your payment was 1200 +400 for the car, now only 1260 but if you send an extra 340 per month for 60 months, it would be like you financed a car and paid it off during the 60 months. So, not necessarily stupid. and now all the interest you are paying is tax deductible.

I agree, go with a 30 year mortgage but pay faster. that way if something bad happens and you lose income you can go back to a 30 year payment and if nothing bad happens you can pay the 30 year off anytime you like. This stategy allows you to prepare for worst case scenerio but still strive for best meaning pay the home off faster.

shop around. today 30year fixed rate mortgage for clients with 740 scores were at 4.625%.

Thanks. I like your thinking. Yes. I would try to find a best car deal, interest wise, etc. I was thinking more or less along the same lines as you but couldn't picture the options clearly.

Thanks again. It's a hard choice anyway.
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Old 05-19-2009, 07:32 AM
 
220 posts, read 983,383 times
Reputation: 170
Buy a car that is 1-2 years old. Most cars lose 1/2 their value when you drive them off the lot.
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Old 05-19-2009, 07:34 AM
 
Location: Lots of sun and palm trees with occasional hurricane :)
8,293 posts, read 15,156,095 times
Reputation: 6987
Quote:
Originally Posted by vpcats View Post
Thanks for your perspective. It would have been nice to be able to save like if I still had a loan payment so that I'd have the cash now. Unfortunately, I wasn't planning on my HOI going to $3800, then $5700, then $6500/yr. Now it's back to $2400 and change.

Sometimes things come up.... like right now I have to get a roofer because all of a sudden it's raining inside my foyer from yesterday's rainstorms.

Get the idea? So...a monthly car payment is scary because I need some play money for emergencies, which do happen.

If I could keep my car, I would. I won't buy used. I'm not going to inherit somebody else's headaches.

I do understand the depreciating factor and it scares me but it may be the only choice.
I just wanted to add to the above re the buying a used car idea. The interest rates are always higher on used cars. No chance of 0%, or 1% or 2% there. Also, the difference between a lightly used car or one of those certified used cars and a new car is minimal. Not worth it.
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Old 05-19-2009, 07:37 AM
 
Location: Lots of sun and palm trees with occasional hurricane :)
8,293 posts, read 15,156,095 times
Reputation: 6987
Quote:
Originally Posted by glenn_1000 View Post
Buy a car that is 1-2 years old. Most cars lose 1/2 their value when you drive them off the lot.
Oops. I just wrote something about this idea before even seeing your post. Sorry. I have been considering that but really, I can't see the huge advantage - unless I can buy from someone privately with good references, etc. And then, what about warranty? A 2 y.o. car may already have maxxed out it's 36,000 miles.

See where I live (Miami), there is no real public transportation to fall back on. It's a car or you're basically grounded so I must have something dependable.
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Old 05-19-2009, 07:40 AM
 
Location: Summerville, SC
1,149 posts, read 3,920,782 times
Reputation: 1121
Quote:
Originally Posted by vpcats View Post
Oops. I just wrote something about this idea before even seeing your post. Sorry. I have been considering that but really, I can't see the huge advantage - unless I can buy from someone privately with good references, etc. And then, what about warranty? A 2 y.o. car may already have maxxed out it's 36,000 miles.

See where I live (Miami), there is no real public transportation to fall back on. It's a car or you're basically grounded so I must have something dependable.
Can't you buy a certified pre-owned car? I believe those come with warranties comparable to new cars.

Or you can do what I did, and buy a new Honda Fit. Best $16k I ever spent. You can definitely buy a great new car for well under $25k. We're paying it off in three years, so you don't have that really long-term loan payment.
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Old 05-19-2009, 08:49 AM
 
28,461 posts, read 75,143,119 times
Reputation: 18518
Default I like Victor's analysis!

I will add that I would probably ALSO run the numbers on a HELOC -- that is ALSO tax deductible, and can be done at the same time you work on a refi, but I have found that generally a STRAIGHT refi (for just the amount you owe) coupled with a HELOC is a smarter way to make sure that you do not get into any trouble. While I fully agree that VB's strategy of accelerating the payback on a mortgage as though it were a simple car loan is sound, I have seen TOO MANY people NOT stick to that, and then end up with their car costing them way too much in interest.

The HELOC will have LOWER intrest than the mortgage, BUT will need to be paid back FASTER, which is a generally a good thing.

SO my suggestions:

#1 -- Investigate a ZERO PERCENTAGE or very low auto loan.

#2 -- refi your existing mortgage amount to take adavantage of low rates

#3 -- if you need cash for home repairs and /or a car purchase get a HELOC





Quote:
Originally Posted by VictorBurek View Post
First of all, it would not necessarily be stupid as above poster said. He/she is making an assumption that i will cover in a moment.

first of all, many car manufactures are offering 0% financing for vehicles, if you can get that than forget about pulling equity out of your home. still refinance to the lower rate, but if you can get a car loan at 0%, take it.

Next, if you cant get 0% find the best rate you can get if it is less than the mortgage rate less your tax deduction, go with the auto loan. For example, if your current loan is a 5% and you are in a 25% tax brachet, than your net effective mortgage rate is 3.75%. any car loan equal or less go with car loan. If the car loan will be higher consider pulling the equity out.

Now, to cover why poltracker made a wrong assumption. Who says you will be paying the car loan for the life of the mortgage. For example, lets say your current mortgage payment is $1200 and a car loan would be $400 per month for lets say 60 months. if you pulled the equity out of the home and just had a mortgage for the total, the new payment would be lets say $1260.(i am using the numbers you provided) what you can do is act like you have a car payment and just send extra to the mortgage. Before, your payment was 1200 +400 for the car, now only 1260 but if you send an extra 340 per month for 60 months, it would be like you financed a car and paid it off during the 60 months. So, not necessarily stupid. and now all the interest you are paying is tax deductible.

I agree, go with a 30 year mortgage but pay faster. that way if something bad happens and you lose income you can go back to a 30 year payment and if nothing bad happens you can pay the 30 year off anytime you like. This stategy allows you to prepare for worst case scenerio but still strive for best meaning pay the home off faster.

shop around. today 30year fixed rate mortgage for clients with 740 scores were at 4.625%.
Rate this post positively Reply With Quote Quick reply to this message
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