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How to buy a car using your mortgage

4 years ago

It can be much cheaper to finance a car using your house as security.

Looking at the current interest rates for car loans on interest.co.nz most are over 10%, whereas mortgage interest rates are around 6%.  While these Buy a Car using your mortgagerates will fluctuate (they might already have changed since we wrote this post in August 2013) mortgage rates will always be lower because they are a more secure loan (banks have your house as security as opposed to a moving object!).

If you want to use your mortgage to finance a car purchase, you will need to take out a revolving home loan.  Here¿s a good article explaining revolving credit loans.  It is likely there will be fees involved (particularly if you have to ¿break¿ an existing mortgage), however, it¿s still probably worthwhile, particularly for a long-term loan.

By way of example, we compared the monthly repayments for a $10,000 car loan, repayable in 12 months, at the prevailing interest rates:

  • Average personal/car loan rate 13% = $1826 per month
  • Average home loan rate 6% = $1739 per month

Make your own calculations here:  https://www.sorted.org.nz/calculators

In the above example you could save almost $100 per month, or $1200 over the term of the loan.

So, before taking out a car / personal loan, put in a call to your bank manager and ask them about revolving credit.  And don't forget to check for money owing etc.

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