Can I Increase My home Loan To Buy a Car?


Can I Increase My home Loan To Buy a Car?

It’s the time when you are thinking about a new vehicle. But aren’t your finances allowing you to cover the purchase price for your new set of wheels?   

Firstly, the most important thing to understand is finding a type of loan with the lowest interest rate. It makes sense to go through competitive rates, find the different finances options, and choose the best one. It is worth noticing that car loans are generally 20 years shorter than home loans, i.e., they have bigger repayments.   

Moreover, where homes seem to increase in value with time, cars have depreciating value with the newest coming models. Thus, it makes car loans a risk for banks as compared to a home loan.   

Now, you might be wondering if you should get a car loan to your home loan in order to reduce the cost of interest rates.   

You can go for multiple potential choices. But if you want to increase your home loan for a new car, you can go for the following two options:  

  • Redraw facility  
  • Refinancing home loan for extra cash  

  

How to add a car loan to your home loan?  

Redraw  

In a case when you are paying extra home loan repayments to the amount of purchase price of your car, then you can redraw the finances from the home loan to buy a new vehicle.     

This is a quick and easy way to reapply for finance if your mortgage offers a redraw facility. Also, it means that you don’t have to pay additionally for an individual loan.   

 The biggest trouble in opting for this option is that you have to make additional repayments on the home loan. You’ll be undoing hard work to reduce the interest rates on loan. Moreover, it also means that you shorten the life span of your loan.    

Besides, remember that the redraw facility of your home loan charges a fee on redrawing funds. There could also be a limit to the amount redrawn.   

 Refinance home loan

Refinance home loan

The other option is refinancing the home loan in order to get funds for your new vehicle. Refinancing can be done with the current lender, or you can switch to another lender if you are getting access to better interest rates.   

With this option, you’ll pay for a home loan instead of a car loan, which means you have to pay for a longer time period than an initial car loan. In fact, there will be a chance that you’ll still be paying for your car loan even when it comes to upgrade it again.   

Regardless of having access to low-interest rates, you have to pay thousands of dollars in the longer term, having a longer payment period. 

Advantages and Longer-Term Results  

When you are upgrading your vehicle, you might be taking the decision out of some necessity. Your previous car is not working worth as per its regular maintenance costs. In this situation, you aren’t ready for any extra payments in addition to ongoing home loan repayments. Even though refinancing and redrawing your loan is a way to add to your regular liabilities, but it definitely comes at a considerable cost.   

While using a home loan to purchase a car, your repayments will be much more as compared to an individual car loan. The value of interest rates depends upon the term left for your home loan. For calculating your interest rate, contact the best mortgage broker in Melbourne.   

Some Alternative Options

Some Alternative Options

Increasing the home loan can be a good option but not always the best. It depends on your situation in which you are choosing this option.   

If you want to keep a shorter repayment period while keeping the overall costs down, you can also consider some alternatives:  

  • Buy second hand

    New cars depreciate in value with the time when new models launch, which means your car won’t be equally worth it until you complete your repayments. So, you can consider buying a used car that could help you save thousands of dollars.  

  • Choose a Longer-Term Loan  

If the cost of payments bothering you, you can choose a car loan with a longer term. For example, choose a loan with seven years of repayment instead of five. Yes, it would increase the payment period, but is a lot shorter than a mortgage of 20 to 30 years.   

  • Increase Repayment Amount

Still, if you are considering increasing the home loan for a car loan, you can increase the amount of payments so as to decrease the payment period. Do some calculation on how much you’ll have to pay if you take two individual loans and how much it will take when increasing mortgage loans.   

Every lender has different rules and policies for these loans. Contact Loan Junction which is one of the best mortgage brokers in Melbourne to help you out with the most suitable advice.

Increasing the home loan can be a good option but not always the best. It depends on your situation in which you are choosing this option.   

If you want to keep a shorter repayment period while keeping the overall costs down, you can also consider some alternatives: