re-mortgaging - should I pay off my car?

Paul_VW

it looks like I have sold my current property and we are buying another one, we are borrowing an extra (roughly) £10,000 to pay for the legal fees and so we can do some work to it (carpets, kitchen etc)

as we are borrowing extra money we are going to put our mortgage up to 30/35 years (its currently on 22) so the payments don't go up (or might even go down slightly)

what I want to know is would it be a good idea to borrow some extra money on the mortage and pay my car off, its 2 years old and has about £3000 remaining on the finance. my payment for it at the moment is £100 a month and the APR is 8.9% :eek: or would I be better off getting a loan?

I want to try and reduce my montly outgoings as we have a 3 week old baby, and i thought paying off the car would give me an extra £100 a month! (which is why i am willing to put our mortage up to 35 years)

Ian_W

Hi Paul,
If you intend to keep your car for 30/35yrs :eek: then it would be perfectly sensible to add the loan to your mortgage - if you might want to change it a tad sooner then it's a little more questionable, IMO.
Putting short term consumer items like cars, holidays and furnishings on long term credit, even though the APR % rates are lower, means you end up paying for them long after they're distant memories and paying 2 or 3 times their actual cost. You'll still be paying for this car 10 cars down the line as it were.
If there are no penalties for repaying your current loan have a look at the best buy costs of unsecured loans on the Loans section of this site - unless they've changed recently they are about 6.5%.
Congratulations on your new baby, I do understand the need for extra money at times like this but s/he will be grown up with their own children before you've paid off the car. Personally I would only do it as a last resort.

Chell

I'm looking at getting a better deal for our mortgage at the moment. On the quotes I have it tells you how much you pay for every £1 borrowed over the term of the mortgage, the figures are around £1.89 per £1! It made me realsie just how expensive a mortgage is.

newUKshopper

It's usually not a wise idea to pay for loans that way. One rule of thumb I heard somewhere was if the loan is for 6 years or less, keep it. If it's longer, it might be wort it. When you have paid off your car loan, you'll be glad you didn't add it to your mortage.

Craig_A

If you have a facility to overpay the mortgage then could it be a good idea to pay off the car loan with funds from the mortgage and then overpay the mortgage by £100 each month for the current duration of the car loan. This should reduce the total interest payable on the car if I understand it correctly?

roswell

but in that case he wouldnt have the extra £100 a month he wants it will just be getting spent on the morgage not the car then when he needs a new car it will be on finance again i assume.

lipidicman

chelltune wrote:

I'm looking at getting a better deal for our mortgage at the moment. On the quotes I have it tells you how much you pay for every £1 borrowed over the term of the mortgage, the figures are around £1.89 per £1! It made me realsie just how expensive a mortgage is.

Good point, I am always amazed how many people don't twig this. This is why saving a good deposit can really help (along with a cheaper rate)

tomstickland

It's a simple sum to do. Multiplty the total number of payments by the monthly payment to arrive at the total you pay back. Divide this by the loan value and you get your ratio.

The amount you pay back is a function of the interest rate and the loan duration. A 25 year mortgage will cost you close to 2x what you borrowed. Paying it back in 10 years will get the ratio down to the 1.25 sort of area. 30-35 year mortgages are a bad idea in terms of the total paid back.

Craig_A

roswell wrote:

but in that case he wouldnt have the extra £100 a month he wants it will just be getting spent on the morgage not the car.

Correct. But he'll make a saving based on the lower interest rate attached to the mortgage.

Paul_VW

ok, thanks I think I will stick with the loan, maybe change it if there are no penalties. But I do like the idea of overpayments also.

I think its worth putting the cost of a kitchen on a mortgage, as I believe it will actually increase the value of the house, and it will hopefully last 20 years!

I am planning on keeping this car until it falls apart, my other car is 35 years old - so who knows how long I might have this one!

speedyjoe

I think the best strategy is to look at the total cost of debt, mortgage included, and try to bring this down.

If you get a flexible mortgage with a good interest rate it makes sense to me to consolidate all debts into this and then with the money saved every month start making overpayments with the intent of one day paying it off and only buying consumer goods from savings.

The only possible problems with this is that it requires constant vigilence of your financial position, foresight and willpower.

The temptation is that once the savings kick in you look at your bank balance and say "ooh look now I can afford to make payments on a loan for a new Mercedes/Canon/Sony/Apple/Volkswagen/Moben/DFS piece of consumer tat" and bang you're back to square one.