Maximising Offset Mortgage Savings Whilst Purchasing Next Car

natalieadams

Hi All,

Not sure where this thread may go but this seems like a good place to get advice.

I have a car on finance - currently £149 a month with a £16k balloon payment due in January 2011. We also have an offset mortgage, with some savings that are currently offsetting the mortgage - it is from these savings that the balloon payment will be paid.

I can't help but feel that, rather than complete the balloon payment in January, I should engineer things so that I continue to pay a monthly amount and leave the savings where they are - continually offsetting the mortgage, and be in the position where I don't truly own the car and the finance company do (and potentially duplicate this cycle).

The problem is, I can't see the detail beyond this open-ended ideal. I guess I will need to replace my car in January to make things happen, but I'm flexible either way? Getting rid of the car brings it own problems - the dealer says it's lost 20% in 14 months, whilst a private sale won't necessarily net the full second-hand value either (as it costs a bit to look after).

Can anyone offer me any advice?

Thanks in advance.

getmore4less

Seperate the money from the car they are not connected.

Simple calculation on the car loan against the mortgage.

If the interest rate is more than the mortgage rate pay the loan off.


Car costs and depreciation only one solution get a cheaper car.

dimbo61

As soon as you drive the new car out of the dealers it loses 10/15% of its value ( unless rare sort after model) and you only pay £149 a month on a £18/20K vehicle which " costs a bit to look after".
In January you have to repay the £16K ballon payment by either selling the car and taking a big hit or using the money in offset account to clear the debt and keep the car for next 3 years at least. Your Choice

Ms_Brush

The other option is to trade the car in for a smaller model, which should be one of the choices available to you as part of the balloon finance deal. Then, you get rid of the car and current finance, you get a new car and new finance, and you keep your money offsetting against your mortgage.

The more financially-savvy fraternity out there will probably come up with 1001 reasons why this is a bad idea financially, but it is exactly what i would do (and will be doing when mine runs out next year!)

natalieadams

Thanks for all the replies so far. I'm not sure if I fully grasp what people are saying, so I wonder if a bit more detail might help.

The car is a BMW M5 - relatively expensive to run and maintain if things go wrong (if you don't have a warranty), thus the 'cost a bit to run' remark. I just thought it might impact on it's private, second-hand value.

I bought it January 2009 for £30k, paid £14k deposit, pay £149 a month and will have a balloon payment of £16k in January. The finance is not through BMW.

Currently we have savings to that equate to about a third of our First Direct off-set mortgage.

I would like to retain the savings amount we have and 'transfer' a balloon payment to my next (not necessarily brand new) car, with a similar monthly payment.

opinions4u

Sooner or later all these deferred / balloon / options / whatever they are called schemes catch up with you.

The impact of depreciation and the cost of the finance force you in to a financial corner where you either have to introduce a bigger cash sum /borrow more from somewhere to retain a car of the standard that you are used to. Alternatively your Beamer becomes a Punto.

As car finance is usually more expensive than mortgage interest, repaying the car finance is usually preferable, as long as you don't end up paying for it over 25 years or so on the mortgage.

getmore4less

Seperate in you head the finance from the car.

You are borrowing money to buy a car, you need to find out the interest rate on the money you are borrowing.

If this is more than the mortgage rate then you are borrowing money a high rate to offset at a lower rate which is silly.



What the car costs to buy and run is totaly seperate issue only you can decide if running a £30k car that costs a lot to run and has massive depreciation is worth it.

getmore4less

Just realised based on those numbers you are borrowing £16k interest only at £149pm

thats 11.2%

whats the mortgage rate?

cj25_2

natalieadams wrote: »

Thanks for all the replies so far. I'm not sure if I fully grasp what people are saying, so I wonder if a bit more detail might help.

The car is a BMW M5 - relatively expensive to run and maintain if things go wrong (if you don't have a warranty), thus the 'cost a bit to run' remark. I just thought it might impact on it's private, second-hand value.

I bought it January 2009 for £30k, paid £14k deposit, pay £149 a month and will have a balloon payment of £16k in January. The finance is not through BMW.

Currently we have savings to that equate to about a third of our First Direct off-set mortgage.

I would like to retain the savings amount we have and 'transfer' a balloon payment to my next (not necessarily brand new) car, with a similar monthly payment.

I might be wrong, but it looks likt the £149 a month is effectively just the interest payment on the car? It seems like at the end of the term you would either have to pay the balance, and keep that car.. or start a new agreement and find some money as the deposit for another car. It doesn't seem possible to do this whilst keeping a low monthly payment without using any of your savings, unless you can sell the car for more the balloon payment *and* use the difference to pay the deposit on another one.

It seems likely any form of car finance you get is going to be more expensive than your mortage (although hard to say definately without knowing the relevant rates), and so unless you fixed at a high rate you'd probably be better off taking the money out of the offset to either pay off the balloon or pay for a new car.

The next question is what to do about the car, but that's going to be more personal about what type of car you want and how much you're prepared to pay for it.

natalieadams

Thanks again for the replies.

Our mortgage rate is 2.99% fixed for two years, then to variable in April 2011.

There are two reasons for considering this method of funding - firstly, the way I pay for cars, and secondly, the long-term costs of a car loan compared to retaining the savings that have an off-setting function. Here's the detail:

1. I tend not to save for a car and 'rely' on other occassional lump sums - I've been lucky enough to have five tranches of maturing share options across the past five years, but these are drying up.

My perspective as that when you buy a car it loses value, that costs money, which I try and equate to a monthly amount.

So, paying a monthly sum (in this case towards interest) is almost like paying a monthly amount towards a car.

My BMW hasn't lost too much value compared to other cars across the past year, and I wanted to work out whether there was an advantage to be retained.

2. Despite the higher interest due on the car loan on the short-term, what I can't work out is whether having the money saved off-setting the mortgage saves us money over the term of the mortgage, compared to paying the interest due on a car loan over a few years.

In summary, which is cheaper - paying off the car loan, or leaving the savings off-setting against the mortgage. We pay a fix amount per month on our mortgage - a portion pays interest and a portion pays the capital. As the savings increase so the, interest payment goes down, and we pay off the more of the capital.

getmore4less

Car loan 11.2%
mortgage 2.99% future variable rate? (bet it's less that 11.2%)

Which is cheapest?

BMW!

Do you want breakdown of your post and how much extra this is costing you?