Go Back  DVD Talk Forum > General Discussions > Other Talk
Reload this Page >

Buying a car / refinancing a house question

Other Talk "Otterville" plus Religion/Politics

Buying a car / refinancing a house question

Old 04-12-07, 07:07 AM
  #1  
DVD Talk Limited Edition
Thread Starter
 
A-aron's Avatar
 
Join Date: Apr 2002
Location: Formerly known as achau9598 - Baltimore, MD
Posts: 5,719
Likes: 0
Received 0 Likes on 0 Posts
Buying a car / refinancing a house question

Not sure where to turn for this onem, so maybe someone can offer some info.

I need to buy a new car, as my current one doesn't fit the family. So, I'm out hunting for a deal.

At the same time, I know that in September I am going to refinance my home to get out of my ARM and into a fixed-rate mortgage.

My question is - if I get a new car loan in the next couple of weeks, how does this affect my credit when it comes time to do the refi?
Old 04-12-07, 07:16 AM
  #2  
DVD Talk Hero
 
Join Date: Aug 2001
Location: in da cloud
Posts: 26,196
Likes: 0
Received 0 Likes on 0 Posts
your debt to income ratio and the LTV of your refi will probably be more important

you can still get a mortgage with a 500 FICO, but banks are getting tighter in the LTV ratios they allow

Last edited by al_bundy; 04-12-07 at 08:06 AM.
Old 04-12-07, 09:26 AM
  #3  
DVD Talk Ultimate Edition
 
Join Date: Jan 2000
Location: Chicago
Posts: 4,175
Received 0 Likes on 0 Posts
I would wait... In fact if you are refinancing take some extra money out to buy the car..
Old 04-12-07, 09:50 AM
  #4  
DVD Talk Hero
 
Join Date: Aug 2001
Location: in da cloud
Posts: 26,196
Likes: 0
Received 0 Likes on 0 Posts
and pay for the car for 30 years?
Old 04-12-07, 10:37 AM
  #5  
DVD Talk Ultimate Edition
 
Join Date: Jan 2000
Location: Chicago
Posts: 4,175
Received 0 Likes on 0 Posts
You could condition yourself to pay the extra 300-400 a month on you mortgage for 3-5 years so the car will essentially be paid off. But if you are ever in a bind then you can skip a month. The other upside is the interest is tax deductible..
Old 04-12-07, 12:05 PM
  #6  
Guest
 
Join Date: Apr 2004
Location: Pittsburgh, PA, USA
Posts: 2,239
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by al_bundy
and pay for the car for 30 years?
That's what I was afraid this thread would be about when I saw the title. It wasn't, but someone actually brought it up.

Putting the cost of a car into a home loan, and in essence financing a car for 30 years is one thing - STUPID!
Old 04-12-07, 12:18 PM
  #7  
DVD Talk Legend
 
kenbuzz's Avatar
 
Join Date: Jun 2000
Location: Bloomington, IN
Posts: 21,074
Likes: 0
Received 8 Likes on 7 Posts
Originally Posted by Altimus Prime
Putting the cost of a car into a home loan, and in essence financing a car for 30 years is one thing - STUPID!
If the total cost is greater (including the 30 years of interest), then I agree. But if the rate is low, and the interest is deductable, I suppose one would have to run the numbers to know for certain that this is a Bad Idea. Seems like one, sure, but I'd want to doublecheck before completely dismissing the option.

Edited to add: Okay, now I'm convinced:

200K mortgage for 30 years at 5.50% fixed = $208,800 in interest paid. 25% tax deduction = $52.2K in savings, net cost is $156.6K

20K car loan for 48 months at 5.9% = $2500 in nondecutable interest

TOTAL COST = $159.1K

20K car loan rolled into mortgage = 220K mortgage for 30 years at 5.5% fixed = $229,700 in interest, 25% deduction = $57.4K in savings, net cost is $172.3K, which is $13.2K more.

So no, doing this is not a good idea... UNLESS you want to consider putting the auto cost on your mortgage AND make payments as if you had two different loans to "pay off" the car part of the loan in 48 months. For example, if you were to combine the 200K and 20K loan into the 30 year 5.5% mortgage, you'd have a monthly P&I payment of roughly $1250. If you make just that payment, you'll end up taking it in the shorts interest-wise (per the previous calculation). However, if you make extra payments for the first 48 months, so that the amount you're paying is equal to what the two payments would have been had you taken out two loans, you'll come out ahead. The 200K mortgage payment would have been $1135, the 20K car payment would have been $470. Combine these and make a monthly payment of $1605 against your $220K mortgage for 48 months, then shift back to the $1250 P&I payment. You end up paying $177.0K in deductable interest, which has an after-tax cost of only $132.7K -- cheaper than either of the previous alternatives.

And if you think the cash flow is a problem, it shouldn't be. If you're best strategy is to keep the car OFF the mortgage, then you're resigned to making two loan payments anyway. This scheme allows you to turn the non-deductable car loan interest into deductable mortgage interest. You end up with larger mortgage payments after month 49 ($1250 vs $1135) than if you had kept the loans apart, but if you've got the income necessary to be a homeowner, it's probably a good bet that you'll have $115 more per month available for your mortgage 4 years down the road - especially if you'll have that car paid off by then. Lastly, this payment scheme knocks 4.5 years off your term, since the original $220K balance will be at zero after payment #305 (vice #360).

Anyway, it's food for thought. And, oh yeah, "lump sum".

Last edited by kenbuzz; 04-12-07 at 12:42 PM.
Old 04-12-07, 12:23 PM
  #8  
DVD Talk Ultimate Edition
 
Join Date: Jan 2000
Location: Chicago
Posts: 4,175
Received 0 Likes on 0 Posts
Like I said... roll it into the home, interest is tax deductible, and make an extra payment toward principle on your home loan so the car would be technically paid off in the desired amount of time. 36months, 48, 60, 72 what ever... That is the BEST OPTION then paying 5% that is not tax deductible.. Plus the option of not making that payment one month can be worth its weight in gold if your in a bind..
Old 04-12-07, 12:43 PM
  #9  
DVD Talk Legend
 
kenbuzz's Avatar
 
Join Date: Jun 2000
Location: Bloomington, IN
Posts: 21,074
Likes: 0
Received 8 Likes on 7 Posts
Originally Posted by ANDREMIKE
Like I said... roll it into the home, interest is tax deductible, and make an extra payment toward principle on your home loan so the car would be technically paid off in the desired amount of time. 36months, 48, 60, 72 what ever... That is the BEST OPTION then paying 5% that is not tax deductible.. Plus the option of not making that payment one month can be worth its weight in gold if your in a bind..
Beat me to it.
Old 04-12-07, 01:19 PM
  #10  
DVD Talk Hero
 
Join Date: Aug 2001
Location: in da cloud
Posts: 26,196
Likes: 0
Received 0 Likes on 0 Posts
the risk is that if your home loses value, then you can be stuck in the home for a while
Old 04-12-07, 01:52 PM
  #11  
DVD Talk Limited Edition
Thread Starter
 
A-aron's Avatar
 
Join Date: Apr 2002
Location: Formerly known as achau9598 - Baltimore, MD
Posts: 5,719
Likes: 0
Received 0 Likes on 0 Posts
I understand the above points, but my question is - is a car loan looked at differently when I go to refinance.

Since it isn't revolving credit, does it necessarily hurt me when it comes to refinance.

Other than the car, I would have the house, one other car payment. CCs opened, but none with balances over 1/4 of available limit (and these are going to be paid off prior to refi).
Old 04-12-07, 02:09 PM
  #12  
DVD Talk Ultimate Edition
 
Join Date: Jan 2000
Location: Chicago
Posts: 4,175
Received 0 Likes on 0 Posts
The loan to Value will hurt you and reduce what they will give you. Are you making a car payment now?

Also I always recommend to people refinancing to take a little cash out for home improvments...
Old 04-12-07, 02:10 PM
  #13  
DVD Talk Limited Edition
Thread Starter
 
A-aron's Avatar
 
Join Date: Apr 2002
Location: Formerly known as achau9598 - Baltimore, MD
Posts: 5,719
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by ANDREMIKE
The loan to Value will hurt you and reduce what they will give you. Are you making a car payment now?

Also I always recommend to people refinancing to take a little cash out for home improvments...
I have one payment (my wife's car)
Old 04-12-07, 02:16 PM
  #14  
DVD Talk Ultimate Edition
 
Join Date: Jan 2000
Location: Chicago
Posts: 4,175
Received 0 Likes on 0 Posts
SO another payment will reduce how much loan they will give you and could actually kill the refi deal because you can't get the loan amount you are looking for. Typically you monthly mortgage payment is about 30% of your monthly income. If your interest only loan is close or above that then you better wait to buy the car. And when you refi take some money out for the car...

I noticed your original question was how will it affect your credit. It won't! but it will affect the above that I mentioned if that is a concern..
Old 04-12-07, 03:51 PM
  #15  
DVD Talk Hero
 
Join Date: Aug 2001
Location: in da cloud
Posts: 26,196
Likes: 0
Received 0 Likes on 0 Posts
first talk to a broker now about a refi because i'm reading about tighter lending standards every day

second you can refi, go to the closing, get the loan and then head on over to the car dealer and buy a car the same day
Old 04-12-07, 05:37 PM
  #16  
DVD Talk Godfather
 
The Bus's Avatar
 
Join Date: Aug 2001
Location: New York
Posts: 54,876
Likes: 0
Received 0 Likes on 0 Posts
Originally Posted by al_bundy
first talk to a broker now about a refi because i'm reading about tighter lending standards every day
Those are meaningless if his credit & income are good and he has some equity.

I would definitely start the "refi conversation" now. At the very least if your credit is less than adequate you have a few months to bring it up to speed.

Also, in some markets, summer is a busier time for selling homes. Depending on your market, it's possible that your home might appreciate 1-3% from now until September. Depending on your scenario, that might bump you into a lower LTV bracket (83% vs 86%, etc.).

Buying a car using money from a long-term home loan is usually not the best of ideas but I can think of a couple of examples where it would not be a bad idea.

The new car loan will have a lot more of an impact on your debt-to-income ratio than anything else.

Like I said, start the conversation with someone now to get an idea of where you stand. Credit-wise, there's not much to worry about but there are other factors to keep in mind which are impossible to get from your post.
Old 04-12-07, 05:47 PM
  #17  
DVD Talk Hero
 
Join Date: Aug 2001
Location: in da cloud
Posts: 26,196
Likes: 0
Received 0 Likes on 0 Posts
there are problems coming up in mortgages where people had good credit

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Thread Tools
Search this Thread

Archive - Advertising - Cookie Policy - Privacy Statement - Terms of Service - Do Not Sell My Personal Information

Copyright 2018 MH Sub I, LLC dba Internet Brands. All rights reserved. Use of this site indicates your consent to the Terms of Use.