Home and Auto Loans

WU-TANG FAN asked:


I own my home free and clear. It’s appraised at $950,000. I want to buy a new truck and was thinking of tapping some equity-$30,000 – to pay off the car and pay the loan on the home equity loan instead. The car payment- with financing- would be around $530 a month. The home equity loan would require me to pay about $300 a month. On the surface it looks as if the home equity loan is the way to go. Just wondering if anyone else has done this and what risks/ regrets you had if any?
Forgot to mention income:$80,000 combined income with my wife. Excellent credit/ FICO SCORE 840. No outstanding debts other than 1 credit card with a $200 balance. Never had credit problems and would not have trouble making the monthly on the loan. I just would much rather pay less monthly using my equity vs. Financing through a dealership- some thing about car dealers that makes me weary. With a fixed payment on the equity loan, I would feel more at ease. I’m not one of those people that uses their house as an ATM. My old truck died and I really need another one to get around and go to work. This purchase is because of need rather than want. Just wanted to clarify. Thanks

7 Responses to “I want to buy a new car by taking cash out of my home that is mortgage free. Is this the way to go or not?”

1. Bob Smith Says:
   April 27th, 2009 at 9:20 pm

   I work for a financial institution, and have mentioned this to many people.

   The only difference between paying $530 a month vs. $300 a month is the length of financing. In other words, even though you’re only paying $300 a month, you might very well end up paying much more over the life of the loan.

   Combine that with the fact that you might have closing costs, recording fees, and other fees incurred by the cost of having a loan on your property, and car loans almost always have low interest rates.

   So, if I were you, I’d finance it as a car loan if you can afford the extra money. Here’s a link to my company’s website, if you’re interested:

   You’ll find the rates listed there as well.

   Good luck.

   Add: Based on your income info, you won’t have any problem getting a low rate anywhere.

2. seekn2know Says:
   April 30th, 2009 at 11:33 am

   Paying for the car outright would eliminate any usage of your home as colateral. But as far as interest rates, your home equity rate would be much lower than the auto loan. On a HELOC, you can have up to 3 amounts locked in at a fixed rate at any one time if rate were to go up. Where I work has an intro rate of 2.99% for 6 months then 4.99% after. If you got the equity line you could take the 30,000.00 auto amount right from the line, and then have it locked in at a fixed rate once the intro rate is over or whenever the rate goes up depending on your preference. Once it is locked in your rate can’t increase on that amount while you pay it down. Once you pay it off the line is available over & over again. I would go with the Equity line.

3. alterfemego Says:
   April 30th, 2009 at 12:33 pm

   ooooooo! Suze Orman would slap your hands. Do you realize why alot of us are in the financial situation of being upside down in our loans? Think about this carefully. We have used our homes equity like our personal bank! Hello now that the equity is gone and values have declined, there is a shitload of us in over our heads! No to bright – especially since we’re Realtors! Just goes to show ya…

   Anyway, Suze says, ” Don’t use your homes equity as your personal bank”.

4. Peilthetraveler Says:
   May 1st, 2009 at 12:03 am

   Without knowing your income its hard to say. We dont know if you are just some kid who inherited his parents 950k home and you have a low paying 9 dollar per hour job, or if you actually make 10k-20k+ per month.

   So lets look at it from this view. If you use your Home equity to buy the car and you somehow cant pay on it after a year, you will lose your 950k home but get to keep the car.

   If you use an auto loan and you cant pay on it after a year, you lose the car only but get to keep your home.

   Also know that if you refi, i think you may end up paying more in property taxes next year.

5. Jaylynn Says:
   May 2nd, 2009 at 7:57 am

   All mortgage loans are not created equal. If you are looking for a loan, you have probably discovered the array of loan types and options. It can be confusing forthe first-time borrower and even for those with more experience! Here, we will discuss the different types of loan options, and how they work.

   First, there are two main broad categories of mortgage loans: government loans (FHA, VA, and RHS, or Rural Housing Service loans) and conventional loans (all other loans). In general, government loans have low or no down payment requirements for the purchaser and are easier to qualify for than conventional loans. They are also guaranteed to the lender, which allows the borrower to obtain more favorable loan terms.

6. Lil' E. Says:
   May 4th, 2009 at 9:19 am

   i would agree with the lady who said don’t do it, the housing market will go up and down, don’t touch that equity. you car, u pay cash, home loan, bank loan, gift will decrease the day u drive it off the lot. u own your home, that is great, leave that equity alone, find another way.

7. stan c Says:
   May 7th, 2009 at 12:37 am

   You can either get a 5 or 10 year mortgage depending how much you want to pay. Make sure you get an open end fixed rate mortgage which means you can pay don’t the mortgage anytime without being penalized. You can also get a secured equity line, Just go into any bank and speak with a VP or manager that should be able to explain the different options.