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9/22/2017 12:11:25 AM
Posted: 7/31/2005 4:17:14 PM EDT
[Last Edit: 7/31/2005 4:19:22 PM EDT by OmegaMan]
Is is bad to take refi cashout and use some to buy a car?

Was planning on doing a cash-out refinance on my home no matter what (with either $30k or $50K cashout) and I WILL need a car next year anyway.

So basically I'll either take out $30K to use for homestuff or take out $50k ($30K for homestuff + $20K to buy car).


Pros
- much lower monthly payments for 5 years (about $100/mo extra payment for cashing out extra $20K for car) vs $400/mo for car loan.
- interest on the $20K to buy car is tax-deductable if through refi but not through car loan.
- lower interest rate (5.5% for refi vs 6.5% for auto)

Cons
- I'm essentially taking out a 30yr loan to buy a car - if I keep house for 30 yrs.
- paying more overall for interest on the 20K if refi - if I keep house for 30 yrs.


So is it bad to use equity from a refinance to buy a car?

What say you?

Link Posted: 7/31/2005 6:55:02 PM EDT
general consensus is yes, if you cant pay back the cash out, you'll lose your home over a car. If you cant pay back a regular car loan, you'll lose your car but get to keep your house, maybe longer than you intend to since your credit will be shot
Link Posted: 7/31/2005 7:32:14 PM EDT
[Last Edit: 7/31/2005 7:54:55 PM EDT by OmegaMan]

Originally Posted By AssaultRifler:
general consensus is yes, if you cant pay back the cash out, you'll lose your home over a car. If you cant pay back a regular car loan, you'll lose your car but get to keep your house, maybe longer than you intend to since your credit will be shot


That really makes no sense because it's a LOT harder to make a monthly car loan payment than the refinance payments for the same amount.

$30K cashout refi = an additional $170/mo payment (approx)
$20K auto loan = an additional $400/mo payment (approx)
-------------------------------------------------
$50K loan totals = an additional $570/mo payment

Compared to

$50K cashout refi = an additional $280/mo payment (approx)


So basically it's $570/mo extra versus $280/mo extra.


I'd say it's far easier to afford an extra $280/mo than $570/mo, wouldn't you?

Link Posted: 7/31/2005 8:01:10 PM EDT
Buy a 3 or 5 year old toyota camery and take the rest of the money and invest it.

What is your interest rate on your cash out?
Link Posted: 7/31/2005 8:10:43 PM EDT
[Last Edit: 7/31/2005 8:11:25 PM EDT by OmegaMan]

Originally Posted By Q3131A:
Buy a 3 or 5 year old toyota camery and take the rest of the money and invest it.

What is your interest rate on your cash out?


I'm not sure I want to refi to get more cash for investing. I'm investing for retirement okay and consider my house an investment that has so far appreciated 10%annually for the past five years. Even if my home appreciates just 4% annually, in 30 years when it's payed off (if I make minimum payments) - it'll be worth more than twice the total I paid for it (including interest).

The cashout refi rate will be approx 5.5% thereabouts.


Link Posted: 7/31/2005 8:33:51 PM EDT

Originally Posted By OmegaMan:


I'd say it's far easier to afford an extra $280/mo than $570/mo, wouldn't you?




Only easier for 4 years assuming your $570 car loan is for a 4 year loan, Paying $280 a month for the remaining 26 years is a lot harder than paying $0 a month for the next 26 years.
Link Posted: 7/31/2005 9:03:05 PM EDT

Originally Posted By AssaultRifler:

Originally Posted By OmegaMan:

I'd say it's far easier to afford an extra $280/mo than $570/mo, wouldn't you?



Only easier for 4 years assuming your $570 car loan is for a 4 year loan, Paying $280 a month for the remaining 26 years is a lot harder than paying $0 a month for the next 26 years.


I understand that. But it seems your reason against this was mainly the idea that if you can't make payments, it's better to lose the car than the house. If after 5 years I come into a situation where I can't afford my house payment - I guess that can happen even if I don't refinance. If the sky falls and I can't afford the extra $280, it could also fall and make me not afford my CURRENT house payment too. Does that mean I should sell now and rent instead? Of course not.

I guess my point is that barring a major financial or employment catastrophe it still seems much more affordable to take equity cash and buy a car rather than get stuck with a car payment for 5 years that is almost twice what the refi payment would be.

Link Posted: 8/1/2005 7:24:01 AM EDT

Originally Posted By OmegaMan:

Originally Posted By Q3131A:
Buy a 3 or 5 year old toyota camery and take the rest of the money and invest it.

What is your interest rate on your cash out?


I'm not sure I want to refi to get more cash for investing. I'm investing for retirement okay and consider my house an investment that has so far appreciated 10%annually for the past five years. Even if my home appreciates just 4% annually, in 30 years when it's payed off (if I make minimum payments) - it'll be worth more than twice the total I paid for it (including interest).

The cashout refi rate will be approx 5.5% thereabouts.



Your house will appreciate at the same rate regardless if you have a cash out refi or not.

See: Should I pay off my house thread.
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