*Look away Dave Ramsey enthusiasts* -- Buying Bronco with cash out home refinance?

[Squatch]

Rolling over a loan of $40,000 @ 5.99%, to a mortgage @ 2.99%, might reduce your interest rate by half and provide the perception that the vehicle is paid off, but the $40,000 becomes $60,000+ over the life of the loan. You'll be paying about $180 for 30 years.

$60,633.35 and if you keep the home for 30 years, it is very likely to appreciate by more than that amount. If you are worried about the ~$168 per month, it will be covered by a less than 5% raise on a $60k/yr salary, or two successive 2% annual raises, of which you should get the equivalent some time before 30 years.

It's not the best thing you can do with your money, but there are benefits for the patient.

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[GeneralBoisvert]

$60,633.35 and if you keep the home for 30 years, it is very likely to appreciate by more than that amount. If you are worried about the ~$168 per month, it will be covered by a less than 5% raise on a $60k/yr salary, or two successive 2% annual raises, of which you should get the equivalent some time before 30 years.

It's not the best thing you can do with your money, but there are benefits for the patient.

Using an appreciating asset’s equity to finance a depreciating asset over 30-years to “save” on interest.

My mind will continue to be blown for the next month.

 

[Squatch]

Using an appreciating asset’s equity to finance a depreciating asset over 30-years to “save” on interest.

My mind will continue to be blown for the next month.

It is not to save on interest. Un-blow your mind.

It is to lower monthly expenditures by diverting the debt of a depreciating asset to an appreciating one which has the near certainty of overcoming not just the extra amount paid in interest, but the entire cost as well.

This is just a way to insulate the Bronco from repossession during an economic downturn or pandemic.

 

[JessD05]

Do yourself a favor and calculate the interested paid over the life of the loan. That number should be the only thing you need to talk yourself out of it.

Thank Goodness. At least there’s one sensible person who understands mortgages and interest.

 

[Straight 6]

$60,633.35 and if you keep the home for 30 years, it is very likely to appreciate by more than that amount. If you are worried about the ~$168 per month, it will be covered by a less than 5% raise on a $60k/yr salary, or two successive 2% annual raises, of which you should get the equivalent some time before 30 years.

It's not the best thing you can do with your money, but there are benefits for the patient.

I'm not seeing the benefits of this strategy
Couldn't you put the 20 grand in interest payments into savings or retirement or lottery tickets?

Sure, homes appreciate and you get raises, but there's no reason to give those gains to the bank in interest payments

Spreading 20k out over a long time doesn't reduce the grand total

 

[Squatch]

I'm not seeing the benefits of this strategy
Couldn't you put the 20 grand in interest payments into savings or retirement or lottery tickets?

Sure, homes appreciate and you get raises, but there's no reason to give those gains to the bank in interest payments

Spreading 20k out over a long time doesn't reduce the grand total

Again, it's not about achieving the ultimate grand total of cash to shovel into your coffin.

I'm just pointing out one justification our dear friend @Nickp could use to give his Bronco a forever home.

 

[GeneralBoisvert]

Again, it's not about achieving the ultimate grand total of cash to shovel into your coffin.

I'm just pointing out one justification our dear friend @Nickp could use to give his Bronco a forever home.

During difficult times, we shouldn't be looking to add 10-20% of your home value in additional debt to the mortgage just so you can afford a vehicle. Perhaps the best alternative is to wait a bit and see how things turn out before risking your home as well. Just my last .02 on this subject.

 

[GeneralBoisvert]

It is not to save on interest. Un-blow your mind.

It is to lower monthly expenditures by diverting the debt of a depreciating asset to an appreciating one which has the near certainty of overcoming not just the extra amount paid in interest, but the entire cost as well.

This is just a way to insulate the Bronco from repossession during an economic downturn or pandemic.

The OP said "...And at 3.5%ish interest that’s going to be better than any deal on financing the Bronco most likely" So the idea was to add the Bronco debt into the mortgage to save on interest. You are essentially getting a 30-year loan on your Bronco. That is insane.

If you are looking to lower your monthly expenses, refi your mortgage and reduce it without having to add additional debt to it.

 

[AZMikeL]

No advice one way or the other here, just some numbers. I used an on-line amortization calculator for $40k. Note that the mortgage will save you on taxes - use your top marginal rate rate to calculate what that will be - let's say 25% for the numbers below)

5 yr car loan at 3%
$718.75 Monthly Payment
$3,125 Total Interest Paid

30 year mortgage at 3%
$168.64 Monthly Payment
$20,711 Total Interest Paid ($15,533 after tax savings)

15 year mortgage at 2.5%
$266.72 Monthly Payment
$8,009 Total Interest Paid ($6,007 after tax savings)

 

[71to21-2DR]

I mean debt is debt. I’m going to refinance anyways (I have PMI and 4.625% interest rate currently) if I can get rid of both of those things, as well as pull cash out it would be nice to have the Bronco paid in full and have the title in hand. If I ever needed to I can sell it instantly. I like that.

I dare you to call Dave and ask him!

 

[LarryZiegler]

Anyone looked into doing this? Probably not the most financially savvy thing ever... but with how low rates are and how much home prices have gone up I’m kinda considering it tbh. I could basically have my mortgage go up $25 a month and pull out $40k or so with how rates are currently. And at 3.5%ish interest that’s going to be better than any deal on financing the Bronco most likely. Of course I would do this and pay a lot extra on the mortgage to pay it down early. Would just be nice to have lower monthly obligations.

If anything was learned from the 2008 meltdown, it was not to use your house as an ATM to take cash out of it. When I re-fied my own house last year at 2.6%, not only did I not touch the equity I have built up, but I also paid all the closing costs of the loan out of pocket rather than financing them into the loan.....I get that some people can't do that. But I'd never take money out to buy a car or anything else (maybe for having to replace a roof, HVAC equipment or other necessary expensive house fix).......get your home re-fied without taking money, then finance the vehicle on its own, with its own payments. Ultimately, its your house and your finances to make your own decisions with. I'm no Ramsey enthusiast either.....just one trying to make smart decisions with my finances.

 

[wjfawb0 [hacked account]]

Just wanted to point out this thread died last September 2020.

Otherwise, yeah, don't use home equity for cars.

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