Faluzure

Just my 2 cents. You can probably do what my brother did when he got his house. When he got his mortgage loan, he pulled out a little bit of extra money and then bought a car, paid in cash. Result? He now has a badass house and a G35c. The cool part is that his monthly payments didn't change that much. Some people may be against this idea but if you do the math, you're not losing that much. On top of that you have more money per month than if you were to finance a car and a house separately because you're paying for both in one check instead of 2.

SlamMan

Yea, and now he'll be paying interest on that car for 30 years instead of just 5 years. Bad financial decision.

Faluzure

I don't find it to be a bad financial decision at all. How do you figure it is a bad decision? Did you even do the math?

Mortgage rates are about 5.5% average these days in Kentucy. I have no clue what they are elsewhere, but I will use Kentucky numbers for these calculations. Financing on cars can range anywhere from 0% to 5%. Say you buy a $200,000 home. For a mortgage term of 30 years at a rate of 5.5%, you pay $1135.58 a month. If you take out an additional $40K to buy a car, your payments will now be $1362.69. Only $200 more.

Now take the same situation but say you finance your car separately. For a 36 month term at 5% for a $40K, you will pay $1198.84 a month on the car alone. If you add that PLUS the amount for your mortgage, you will be dishing out $2561.53 a MONTH on car + house payments alone.

Depending on how much you make a month, I think for the majority, the 1st option is much better. And nobody says you can't make early payments if you have the cash to spare. And it is easier to refinance your home than to refinance your car. You get better rates with a mortgage loan. Plus, the last time I checked, the average salary for an American is close to $36,764. There's absolutely no way you can make $2561.53 month payments with that salary alone, especially if you live in a densely populated area because the cost of living there is outrageous.

gburch

It is not a bad idea as long as your mortgage allows you to "prepay". That way when you sell your car you should dump whatever you have into your loan. You do not want to actually pay for that extra $40 for 30yrs or it will turn out to be a $100g car. However if you can trust yourself to prepay that 40gs then you are ok and it will work out slightly better in the long run.

Faluzure

Definitely. I agree that this idea is good *only in the short term*. I know by doing this, the interest will end up reaming you for that car by the time you hit near 30 years. However, I highly doubt that anyone would keep their car for 30 years, especially a sports car like the G35c/350Z. I think at most, he'll keep the car for about 5 years before he turns around and sells it.

gburch

I had a friend who flipped houses and he was always taking out loans for a lot more than he needed just to get his pay-off up front. He even got a dealers license and flipped cars . He frequently had really complicated loans but those loans never went more than a month and allowed him to live more freely without having to get business loans. If he thought he could make 20gs on a house he would try to get a loan for that above the house's value or at least as close as he could. He could take that risk though because he had the cash flow, but he was now able to reinvest that profit a month early and when working with a lot of money a months worth of profit, reinvested, can mean all the difference between poor and wealthy. Anyway that was just to give you an idea of why people do this...

Armitage

iTrader: (15)

Version 1:

Car + House on Mortgage

$1362.69 x 12 months = $16347.48
$16347.48 x 30 years = $490424.40

Version 2:

Car + House Separate:

$1135.58 x 12 months = $13626.96
$13626.96 x 30 years s = $408808.80
Total = $422435.76

Difference = $67988.64 / 30 years = $2266.29 / 12 months = $188.86/mo

Looks like that extra $200 really adds up over time.

But when you sell it, aren't you going to use that money towards the purchase of another car? You'll never get back what you paid into it, especially five years later. Then on top of that, you have another car payment. It just doesn't seem to add up fiscally to me, though I'm no expert.

Faluzure

You're not looking at the bigger picture here. My point was that by taking an additional amount for your mortgage allows you to save money in the present. Not the future. gburch and I mentioned that this was good in the short term. That is if you are responsible enough to make early payments to bring down the total amount of your mortgage over a short period of time.

Take for instance someone making 40K a year. It would be much harder for that person to pay for both a house & car separately. By just getting both under a home mortgage loan, he can work on saving money better because he'll have more money per month.

In addition, you have to remember that refinancing on homes a common thing in the home owner's world. There isn't a rule that says you can't refinance. Again, you're looking at long term. Nobody is going to keep a car for 30 years. You must remember that homes build equity. This is why refinancing is essential when you deal with homes. Nobody refinances on cars because you never build any equity. They depreciate. If you're smart, you can actually live off equity from buying & selling, just as gburch's friend did.

Moreover, many people do not wait 30 years to refinance their homes. Say you do a 200K mortgage loan and get a car in addition. Since you have more money left per month, you can make early payments. Then you can relook at your loan at 3-5 years down the road and then refinance the amount you have to reduce your monthly payment.

Yes you lose money over interest, but isnt that the case with all loans? Students who take out loans to go to college end up paying more because of interest. The whole point in financing is to make things affordable. Regardless, when dealing with any type of loan, you will lose money. You just have to try to have a low monthly payment so you won't get a visit by the repo man. That's why so many consolidation companies are making bank and many people are not living paycheck by paycheck. They take outrageous montly payments and reduce it to 1 lump sum.