Should I finance a car through my mortgage?

A common question we are asked, is ‘is there is any benefit to financing a car loan as part of an existing mortgage?’

Just adding your car to your mortgage may seem like a quick and easy way to finance, but if you’re not careful you may find yourself paying a lot more in the long term! Adding a car to your mortgage is NOT something we generally recommend.

Here are a few things to consider;

  • You’ll usually pay a lot more – Don’t get fooled by low mortgage interest rates. Even though the interest rate you are paying on a car loan may be a bit higher, a shorter loan term means you’ll often pay a lot less over time. For example:‘If you finance a $50,000 car over five years at 5.5% interest, you’ll pay $7,303 in interest. If you add the car to your mortgage at a lower rate of 3.5%, with 20 years remaining on the mortgage, you’ll pay a whopping $19,595 in interest!’By paying the car off in five years at a higher interest rate, this will save you thousands compared to a lower interest rate on your mortgage over a longer term.
  • Future you – By keeping your car finance and your mortgage separate, it will be easier to feel that you are paying off the car quicker. You’ll always know what is owing on each loan, so owning the car outright will happen much sooner. You probably won’t keep your car for more than 5-10 years, don’t put yourself in a position where you’re still paying for it 10 years after you’ve gotten rid of it.
  • Balloons – A balloon works like a reverse deposit that you can pay at the end of your loan to lower your monthly repayments and is a very popular feature that our clients opt for. If you lump your car loan in with your mortgage you can’t secure a balloon payment onto the end of the term.
  • Upgrading – By knowing that you own the car outright it will be easier to justify upgrading when your new dream car is released. If your current loan is tied in with your mortgage this won’t be as easy to accomplish.
  • Redrawing – You’ve been making extra repayments, so why withdraw them? You should be congratulating yourself on being ahead rather than using any redraw facilities for some quick cash.
  • Hidden costs –there will most likely be set fees that you will have to pay to refinance your mortgage. You’ve already paid to set it up once so why pay again?

Taking out any finance is a big decision, so before making any applications be sure to check all the facts, do your own calculations and work out what is the best option for you.

For more information on how we can help you secure the best deal on car finance or a mortgage, give us a call on 1300 301 051.


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