Borrowing from the mortgage

G'day all,

Hope this isn't too off topic, but I've had a bit of an unfortunate situation some up. Someone has hit my car which will result in it being written off, and the payout (around $1700) won't get me close to a new car.

I currently have around $455k owing on my property which I think is worth about $600k.

Is it possible to talk to the bank and get around $20k added to the mortgage which I can use to purchase a new car? I think this would be preferable to taking out a car loan at a higher interest rate. Are there any other options I should consider or be aware of (e.g salary sacrificing a new car)?

Bank is NAB, on a variable home loan with 100% offset account.

Cheers.

 

Yep, that is certainly possible, and depending on your serviceability will be approved.

If you go down this track, get the $20k separate to your home loan, rather than a top up, and get it on a shorter term, say 5 years rather than 30. You don't want to be still paying off the car in 20 years time.

Regarding salary sacrifice, if there is a work component to your car use, you can salary sacrifice whether the car loan is secured to the house, or a car lease or normal personal loan etc.

Salary sacrifice companies make thing easy to set up, but are usually a little more expensive than sorting it out yourself, or with your accountant and mortgage broker/banker.

 

Yes definitely. As Tobe mentioned, just need to make sure you can service the extra amount.
Taking it to $480k would keep it at 80% or below and avoid LMI, as well as giving you $25k.

 

Adding to your home loan is the cheapest option.

But the sting in the tail is that the repayments are spread over the life of the loan.

If you choose to do this, I would suggest you get a quote for a personal loan over 4 or 5 years for the same amount. Check the monthly repayment amount.

Borrow on your house loan, but pay the personal loan amount each month. That way the extra loan amount won't outlive the car.
Marg

 

Well, it is the cheapest option if you borrow to buy a $30,000 car.

A much cheaper option would be to pay cash for a $5,000 or $10,000 car.

Blacky

 

True.

But I was replying to the original post which referred to the need to borrow after receiving a $1700 payout.
Marg

 

Hi Marg,

I would never borrow on the house for anything that goes down in value or not classed as an acutal asset.

The issue is most people would never pay that loan back for the car because people do not see it as a seperate debt.

Use your home equity for investment purposes only!!!.

Take out a proper car loan....

 

Depending on the circumstances you could use the opportunity to debt recycle. But that can over complicate things.

A lot of car loans are about 7% currently. Its a cost of +/-2.5% difference representing less than $500/year over 5years.
However, you use equity which may otherwise be available to invest with. It is more likely (as @jpcashflow stated that you will still be repaying the loan in 10years from now.
You could save a lot more by taking out the car loan, and paying it off earlier - or alternatively buying a cheaper car.

Im very anti borrowing to purchase a car.

Blacky

 

Keep the term low as Tobe mentioned.

Have nab carry out an upfront valuation before you submit anything.

Cheers

Jamie

 

Also depending what you do for work you could have some tax benefits... talk to an accountant

 

Some secured car loans are close to mortgage interest rates but there can be restrictions like age of vehicle and buying via dealer vs private sale.

As Tobe pointed out, get a separate split from your home loan and reduce the loan term to what a personal loan would be such as 3, 5 or 7 years with the aim to pay off ASAP then there's not a great deal of difference in the loan itself, just the fact that it's secured against a house and not vehicle.

 

make sure you split the loan to avoid contamination issues if you later rent the property out.

 

If you have been paying extra repayments, you might have enough to consider doing a "redraw".

Otherwise there's the option of a "top-up" or "refinance".

 

I would take 25 in a LOC, spend 10 on the car and keep 15 as a buffer for future emergencies.