Refinance House To Buy Car
A cash-out refinance means refinancing your old home loan with a bigger loan, and taking the difference in cash. You can then spend that any way you want. So, naturally, you can use a cash-out refinance to buy a car or pay one off.
refinance house to buy car
Clearly, that minimum of $270 a month difference between a 5-year auto loan and a 30-year refinance will be critical to anyone currently facing serious cash flow challenges. Indeed, the more affordable option could see a family remain afloat and continue to pay its bills on time. The more expensive one could result in a financial spiral that ends in disaster.
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A home and a car are two of the biggest purchases most consumers will ever make. But it may surprise you to learn that one can actually help you buy the other. That's right -- you can use a cash-out mortgage refinance of your home loan to buy a new automobile.
With a cash-out refinance, you're taking out a new mortgage to pay off your old one, while borrowing some additional money at the same time. So if you owe $130,000 on your current mortgage and are looking to borrow $30,000 for a car purchase, you'd end up owing $160,000, plus fees, when the transaction is done.
To qualify for this type of loan, you need a certain level of equity - that is, value of your home over and above what you still owe on your mortgage. Generally, you'll need to have at least 20 percent equity remaining in your home after a cash-out refinance, so in the example above, your home would have to be worth at least $200,000 to make the deal work.
One of the big reasons for using a cash-out refinance to buy a car used to be that you could get a better interest rate on a mortgage refinance than you could with a car loan, but that really isn't the case these days. In fact, interest rates on auto loans are actually running lower than for mortgages at most lenders right now.
This points up one of the major downsides of financing a car this way. Your car may only last 10 years, but you could be paying for it for 30. However, that may not be a bad choice to make if you're in a temporary situation where finances are tight - such as if you're paying off medical bills, a lawsuit or a divorce settlement and need a new car. You don't have much extra money right now but will in a few years once those current bills are paid off. In that case, a cash-out refinance can provide you with some wiggle-room to get past the crisis, or perhaps even be used to pay off the bills that are causing difficulty in the first place.
You probably don't want to use a cash-out refinance to finance a car purchase unless you can also use it to obtain more favorable terms on your current mortgage, such as getting a lower interest rate than you currently have. That's because the closing costs on a refinance are substantial - often 2-3 percent of the loan amount, even higher if you pay points to buy down the rate.
So if a cash-out refinance leaves you with a $200,000 mortgage, you'll probably end up paying at least $4,000-$6,000 in fees, which are added to the effective cost of your car. But if you can get a lower mortgage rate at the same time, that could make the transaction worthwhile.
One way to avoid this is to use a home equity loan, rather than a cash-out refinance. In that case, you're taking out a second mortgage for just enough to pay for the car. The closing costs are far less, because you're borrowing far less than the full mortgage amount. And the interest is still tax-deductible, though the rate may be higher than on a regular mortgage. The repayment term will be shorter as well, so the monthly outlay will be more than on a 30-year mortgage, but it's less likely the loan will outlive the car.
The biggest reason not to use a cash-out refinance or any type of home equity loan for a car purchase, however, is that you're pledging your home, perhaps your most permanent and valuable asset, as surety in the purchase of a temporary asset like a car, which will depreciate in value over time.
Refinancing your mortgage is a great way to lower your monthly home loan payments and save on interest to boot. And when it comes to refinancing, you have choices. You can do a regular refinance, where you get a new mortgage with a balance equal to what's left on your current home loan, or you can do a cash-out refinance.
You can do a cash-out refinance for any reason -- responsible or otherwise. But while taking money out of your mortgage to go on vacation or buy electronics may not be the smartest thing to do, here are a few good uses for a cash-out refinance.
If you owe money on your credit cards, you may be paying a pretty high interest rate on that debt. As such, a cash-out refinance could help make that debt less expensive to pay off. Say you qualify to refinance at 3% interest. And let's also say your credit cards are currently charging you an average interest rate of 14%. Clearly, it's more beneficial to you to pay off a loan at 3% than 14%. And also, squaring away your credit card debt could help your credit score improve by reducing your credit utilization ratio, which isn't negatively affected by your mortgage debt.
It's an unfortunate fact that sometimes even people with good health insurance wind up on the hook for costly medical bills they can't afford (and those with bad insurance or no insurance are even more likely to get slammed with expensive healthcare bills). If you're carrying medical debt, a cash-out refinance could help you pay it off at a more affordable interest rate. And also, it could make that debt easier to manage. Say you're currently paying off three separate medical bills over time. With a cash-out refinance, you knock those bills out and then pay a single bill -- your mortgage -- going forward.More: Check out our picks for the best mortgage lenders
A car is a reasonable thing to have, especially if you live outside of a city. If money has been holding you back from getting a car, a cash-out refinance could be your ticket to a new set of wheels. Having a reliable vehicle could open the door to getting a new job, earning a generous side income (if you decide to drive for a rideshare company or pick up shifts as a delivery driver), and having easier access to essentials, like supermarkets and pharmacies.
Maybe you have a few big renovations on your radar but lack the cash to pay for them. In that scenario, a cash-out refinance could be a good solution, especially given today's affordable rates. Improving your home can do more than just make it more comfortable -- it can also add resale value to it. So if you've been waiting to finish your basement for extra living space or expand your tiny kitchen, a cash-out refinance could make that possible. Similarly, if there's a big home repair you've been putting off due to a lack of money, a cash-out refinance could help you address that issue quickly before it worsens.
There are risks associated with a cash-out refinance. If you take on a larger mortgage and have a hard time keeping up with your payments, you could risk losing your home. But if you can swing those higher payments, a cash-out refinance could help you meet other important money-related goals.
If you're not sure how much of a monthly payment you can handle, you can use this mortgage calculator to run the numbers by putting in your loan amount (in this case, your existing mortgage balance plus the amount you'd be looking to take out in cash), its term, and the interest rate you think you'll get. Here's a snapshot of what refinance rates look like today. Having that information will help you decide whether a cash-out refinance is right for you.
At Rapid Finance, we've helped our clients to refinance their homes to get a new car. We've also helped clients to get secured car loans. And, in our experience, secured car loans are often a more suitable option.
Your second option is to refinance your home loan in order to access additional funds to buy a car. You could do this with your current lender, or switch to a new lender if that means potentially accessing a more competitive rate.
Now consumers are confronting a tough question: Should they pause their searches for new houses, cars and other big-ticket items in the hope that interest rates will fall whenever inflation is reined in?
Find a way back. Staton leans toward pressing ahead with bigger purchases like a house now, as long as the buyer is financially ready to do so. (By that he means that you currently spend no more than 50% of your income on housing, food and basic needs; 30% on discretionary purchases; and you save 20%, and that on top of that you have the cash to cover a 20% down payment plus closing costs, moving expenses, furnishings and other incidentals, he said.)
Hours before the Fed announcement, data on mortgage refinance activity showed a 4% drop from the previous week and an 83% drop from the same point a year ago. In early August, refinance activity slightly increased from the previous week, but was still down 82% from a year earlier. 041b061a72