Remortgaging with car loan

haddock_n_chips

Hi All!

Back on here for some more advice!

We are in the position where our mortgage fixed term will end in August 2019, so we'll have to look at remortgaging it.

The problem is that we are in need of a new car, my wife's car is now not viable and she commutes 60-70 miles a day. (My car is a cheap £600 jalopy that gets me to work & back fine!)

We were originally planning on waiting until remortgage time and take extra from the mortgage to pay for a replacement used car from the extra mortgage amount.

This now seems unlikely as we need something sharpish to replace the outgoing car.

So in the mean time we were looking at a personal loan to cover the amount needed (around £6.5k) to buy the newer car. Then when the mortgage is coming for renewal borrow enough to pay off this loan.

Firstly is this a stupid idea?!

My thinking is that currently we overpay our mortgage by more than the loan repayments would be on a personal loan. So when we get the remortgage it'd wouldn't be a problem and we'd still be technically overpaying.

Our mortgage is fairly low (89k with 17 years left, house value 250k) as we've been overpaying wherever we can (monthly and any lump sums we've gotten), so borrowing for a car using the mortgage seemed like a good idea.

My worry is that come re-mortgage time the banks will look and see the loan and either not be happy about it or not be happy about letting us have more money to clear it down.

Any thoughts from you guys?! All help appreciated.

AnotherJoe

Depends on your earnings. Obviously having a car loan does not rule out people from having mortgages it simply depends on income and outgoings,

Have you not got any emergency savings? Thats an uncomfortable place to be.

Assuming not then i suggest you've seriously overdone the mortgage overpayments by moving all your liquid cash to a very illiquid place, and should have been focussing on the wider financials. To put some numbers on it you will likely end up paying some off a (say) 2% mortgage and will replace that with (say) a 6% car loan even if you will rectify that later. Not the best plan.

Most likely you are also neglecting your pensions as well if that level of dedication to mortgage overpayment is going on. You need to look at the bigger picture. Emergency savings. Savings for big spends like major house repairs, car etc, pension. The mortgage will take care of itself over time and inflation will also help there, you arent giving it time to work. IN 17 years time the last few pounds you pay off the mortgage will probably be worth half what they are in todays money but you are pushing to pay them off with money thats worth 2x that now.

Right now, i suggest you get the car loan and the new car, stop overpaying the mortgage, build some emergency savings (possibly split into pots such as so much a month for a car, so much for holidays etc) so its not a crisis when you need a new one, and when you remortgage look at all your financials rather than just the one number you can see. You might not currently see your pension as a liability, but thats a debt to your future self you need to be considering as well.

haddock_n_chips

Thanks for the reply, all good points

some more detailed info:

Household income £60k (plus bonuses if applicable, last year was combined £3.5K extra)

Current Mortgage: £89K
Current Mortgage payment: £540 p/m
Currently overpaying: £150 p/m
Emergency savings: £5100 (Currently in premium bonds)
Other savings: £300 p/m (normally put aside for holidays), current balance £1500

Current mortgage: 3.4%
Personal Loan: 3.5% (if we took one, already checked and pre-agreed rate online)

Pension contributions are OK. I'm paying 6.5%, wife is paying 7% plus our employer contributions on top. Something we could perhaps up in time.

AnotherJoe

haddock_n_chips wrote: »

Thanks for the reply, all good points

some more detailed info:

Household income £60k (plus bonuses if applicable, last year was combined £3.5K extra)

Current Mortgage: £89K
Current Mortgage payment: £540 p/m
Currently overpaying: £150 p/m
Emergency savings: £5100 (Currently in premium bonds)
Other savings: £300 p/m (normally put aside for holidays), current balance £1500

Current mortgage: 3.4%
Personal Loan: 3.5% (if we took one, already checked and pre-agreed rate online).

Your current mortgage rate is scarily high given the very low LTV. Hindsight now but you should probably have remortgaged a couple years ago. Did you have a very long fix (as in five years or more) or credit problems to end up with that rate ? My daughters on 2% with a slightly worse LTV.


In your shoes i would sell half the PBs take a car loan that worked out to £150/month or so and stop overpaying, and spend the overpayments on paying the loan and building up the emergency fund in a high rate savings account instead of PB's.



I am not a broker but you are only looking for a multiple of about 1.5x earnings when you can go up to 4.5x so the car loan should be noise. I would not borrow more to pay it off because the temptation would be to pay it off over 17 years not 3 or so. It will also remind you that you owe it rather than forgetting its subsumed in the house and pay interest over 17 years.

haddock_n_chips wrote: »

Pension contributions are OK. I'm paying 6.5%, wife is paying 7% plus our employer contributions on top. Something we could perhaps up in time.

IMO quite low unless you are mid 20's, even if employers are adding the same amount as you, which they probably arent.

haddock_n_chips

Thanks AnotherJoe,

Appreciate the replies and some good points

Will look at the pensions ;-)

As for the mortgage, we were first time buyers and took on a 5 year fix. I have looked at getting out but the penalties are too high to make it worthwhile