Drawing down Mortgage and I need a Car in the next 12 months

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Reilstone78

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We are due to draw down a Mortgage in Feb 2021 and have availed of the enhanced Gov. HTB Scheme. We are 1st-time buyers and have paid the minimum 10% deposit. We need a new car in the next 12 months and my query is in relation to whether I should take the full offer from the bank and use the savings/small gift we had planned to put toward lowering the total amount borrowed to purchase a car!

My thinking is that the interest rate is a much lower % than a car or personal loan. My concern is that I will be paying off my car for 26 years, so is it really better value money!!

Any advice would be welcome!
 
Reilstone78 said:
My thinking is that the interest rate is a much lower % than a car or personal loan. My concern is that I will be paying off my car for 26 years, so is it really better value money!!
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Hi Reilstone

You should use the mortgage to fund the car purchase as the interest rate is lower. The fact that it is a 26 year term is irrelevant. You can overpay your mortgage so that the "car loan" element is repaid within 3 years.

If you fix your mortgage rate, check that you can overpay.

Or set a part of it at a variable rate.

Brendan
 
If you have a variable rate mortgage, you an overpay at any time without penalty.

If you have a fixed rate mortgage, there will be a penalty unless the bank allows you to overpay.

However, the penalty shouldn't be much and might actually be zero.

And, of course, at the end of the fixed rate period, you can pay as much as you like off the loan without penalty.

Brendan
 
Thanks, Brendan,

The offer is a fixed-rate mortgage @ 2.3% so that is much better than a CU Car Loan. It's a fixed-rate for 2 years, so If I take a 3-year car loan in the middle of this fixed-term and then try a switch from the lender after the 2 years fixed-term finishes I may not be able to switch as easily with an outstanding car loan?

Food for thought.
 
Can you be more specific about your plan, the dates and the numbers.

Is it something like the following?

1) January 2020 Borrow €200k @ 2.3% and fix for two years (Which lender?)
2) January 2021 Borrow €18k @ 6% from a credit union to buy a car and repay over 3 years?
3) January 2022 Switch mortgage to another lender to avail of cash back?

Brendan
 
Hi Brendan,

1) Feb 2021 - Borrow €300k - €325k @ 2.3% 2yr Fixed for a €375k Property from UB. We have paid 10% already and are approved for €337k so the amount we end up borrowing depends on what we choose to do with purchasing a car!
2) ~July 2021 - Potentially borrow €18k - €20k from CU and repay over 3 years if we don't bake it into the Mortage borrowing
3) Feb 2023 - Switch lender after 2 years fixed-term
 
OK, so if you add it to your mortgage, you will be borrowing €20k , which you don't need, for the 6 months from Feb to July. This will cost you €20k @2.3% for 6 months, or €200.

If you borrow €20k from the Credit Union at 6.3% instead of 2.3%, it will cost you 4% of €20k or €800 in the first year alone.

So well worth adding it to your mortgage.

Just make sure that you don't add it to your mortgage and spend it on a new gazebo for the back garden and then you have to borrow the €20k from the Credit Union anyway.

The penalty for early repayment of a 2.3% mortgage should be very low.

Brendan
 
Thanks Brendan - now I need to convince the wife not to purchase the gazebo! If we choose to bake the car loan into the Mortgage I will probably purchase the car much sooner!
 
Reilstone78 said:
Final Question:

What if VW offers 1.9% PCP Finance? Is PCP Finance @ 1.9% better value?
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Only if you're paying the entire balance over the term. If you're left with a residual balance you'll end up taking out a loan to pay it off (or buying another new car!).
 
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