Remortgage - extra for new car purchase.

Glover1862

In a few months time I'll need a new car as my lease car goes back. This time I'm thinking of purchasing rather than leasing, it so happens that my fix rate mortgage is coming to an end and I was looking to remortgage anyway, would it be a bad idea to borrow an extra £20k for the new car? I've only got about 25% ltv mortgage so should get a decent rate 1.65% to 1.99%, adding another £20k pushes the payments up by about £75.00 pm. I appriciate the mortgage term is much longer but I've been overpaying anyway and will continue to do so, therefore I can't see too many downsides.

If I'm moving from my current lender to a new lender do I simply tell them I want the extra cash and will it simply be added to the current mortgage on one account at the same rate, or do they offer another account for the extra lending at a higher rate? Currently with coop and thinking of moving to Coventry bs.

SavingSteve

They'll ask why you want the extra money. A new car is legit, and as long as you meet affordability you'll be fine.

An eminently sensible idea.

Glover1862

Thanks Steve, I just wanted to know how the process works, ie will the new lender combine the new lending with my existing Mortgage and have it as one account at the same rate. Not too keen on running two accounts hence why I'm choosing to do it when I remortgage.

tacpot12

The idea sounds good at the moment but what if interest rates rise and what if your circumstances change? Do you want to risk loosing your house because you are still paying for a car you bought many years ago.

I would agree that it the cheapest way for you to borrow the money, but do you really need a brand new car, or would a three or four year old version of the same car be ok? If you borrow the money via a new mortgage I'd recommend that you overpay the mortgage by the same amount as your current lease is costing you, rather than £75. You will be shot of the debt much quicker and will have saved a packet on interest.

JimmyTheWig

Glover1862 wrote: »

Thanks Steve, I just wanted to know how the process works, ie will the new lender combine the new lending with my existing Mortgage and have it as one account at the same rate. Not too keen on running two accounts hence why I'm choosing to do it when I remortgage.

If you're sticking with the same mortgage company (i.e. not a remortgage) then they'll want to know what the extra money is for, may choose not to loan for that purpose, will make it a second loan on the mortgage at a different (probably higher) rate that the main loan.
If you are moving to a different company, I believe (though have never done it) that you just tell them how much you want in total and they don't care about any other details. It would be a single loan.

Though I echo what tacpot12 says.
There's two problems in doing this.
1. You are taking out a secure loan (secure for the bank, not for you) for a depreciating asset. If in the future you can't afford to pay the mortgage then you lose your house. For the sake of having bought a car. Not ideal!
2. You will be paying it back over a long period and probably paying more interest than you would have done for a higher rate personal loan.

To cater for point two, I would work out how much I'd be paying a month on the mortgage without the car loan, how much I'd pay a month on a personal loan for the car, add the two together and pay that on the mortgage each month.

SavingSteve

The new lender will want to know why you're borrowing more than the redemption on the old mortgage. But they would combine into one mortgage account.

As others say, unless you compensate buy overpaying you'll likely pay more in the longer term as the loan is spread over a longer period. You already state you'll do that.

I don't share the pessimism of others, if you were going to borrow for the car anyway then this is a more sensible way to borrow. New vs 3/4 years old is obviously a completely separate debate.

Glover1862

I'm currently overpaying my mortgage by £600 per month, I'll carry on paying this so the extra £20k would effectively be paid off in less than three years.

The house is currently valued at over £500k and I have £130k left to pay (18 years, planning to pay off in 10 years), LTV is low hence why I had the idea, taking a loan is always a risk but I think this is low, don’t forget I can always sell the car to pay off the extra lending if times got very tough, I've actually got the savings but don't want to use it finance a car when I can borrow at such low rates, I'd rather hang onto the cash until I really need it.

As for buying a 3 or 4 year car, I've done the figures and not much in it, if you look around some great deals buying new. My current lease is £300 pm, the cars going back but as I've had it from new and it's fine I would have kept it for another 3 years. I'll just buy this time and keep it for 10 years, loan paid off in three and the saving from no lease cost I'll use as bigger mortgage over payments.