3 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 rates 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:
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.