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The pros and cons of financing your next big purchase in your mortgage
Posted on Tuesday 25th July 2017
Redrawing on your home loan to finance a car may seem like a pretty straightforward way to secure a low interest rate since home loan interest rates are currently much lower than the standard secured car finance interest rates, however there are a few reasons why this can be a bad idea and end up costing you much more in the long run.
The interest rate on a home loan might be lower, however the total amount of debt on a mortgage is much larger and the effect of compound interest means that you could end up paying more interest by combining your car finance with your home loan as opposed to keeping them separate.
Here is a practical example: The current ANZ variable mortgage rate is around 5.79%, on a loan of $650,000 paying the minimum repayments the estimated interest is $721,512 over the life of the loan.
Now let's say for example that you want to buy a used Nissan Navara for the family and work for $25,000 including on road costs. By including this in the mortgage the estimated interest payable spikes to $749,263 which is an incredible $27,751 which is more than double the price of the car in interest!
If your heart is set on packaging the car and home loan together it is paramount that you create a separate payment schedule to make extra payments to the loan. By doing this you will minimise a portion of the interest payable on your mortgage. Needless to say you can end up paying a lot more for your car than necessary unless you are disciplined.
At Kiwi Car Loans, we look at tailoring the best packages for our customers. Whether you're looking to purchase a new car or a used car, through a dealership or privately, our specialist team can compare products from many of New Zealand's most trusted financiers to find the best finance options to suit your needs.
Each of our specialist Finance Consultants have many years of experience and a wealth of knowledge in the finance industry, so give us a call today on, or get an to see what we could save you in time and money.