current account mortgage use facility available to pay towards car

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patspost

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Hi there folks,
I have a current account mortgage with a "facility" type feature that I can use some money from and I was thinking to use this towards paying for my car.

Rather than borrow money from the credit union at 10%, I can effectively borrow at the mortgage rate.

It seems a no brainer, what am I missing?????

I plan to repay the money to the bank, I will come up with some way of doing this, maybe every 2 months or so.
The bank say I need a life policy to cover the additional amount, which I have. I need to assign this to the lender, no problem, sign a bit of paper.

I am not in "negative equity" as such, in that I should be able to sell the house for in excess of the new total borrowed amount.

I know this went on a lot during the "boom" and people were releasing equity, I am doing the same thing I suppose but the total loan will be still less that the "value" of the house.

Am I missing anything?
 
You are missing nothing. This is exactly the purpose of those type of mortgages, to do this correctly what you should do is draw down the amount needed for the car from the facility and then make extra repayments over the term you would have borrowed the car loan for. For example if you wanted a 4 yr car loan then pay back extra each month into the mortgage an amount equal to the repayments on a 4 yr loan at the rate you are on. The bank can tell you the cost per thousand on the relevant rate.

That way the extra funds drawn down are cleared in the time you intended but at a much lower rate than any car finance you could possibly get.

The only added cost would have been the extra life cover but if you already have that then your're sorted.
 
Thanks Wbbs for your prompt reply.
I just wanted to ensure I didnt miss anything obvious.

I have contacted the life assurance company to get a schedule sent out to me, so when I have that I will head to the bank.

Tks again.
 
patspost said:
I know this went on a lot during the "boom" and people were releasing equity, I am doing the same thing I suppose but the total loan will be still less that the "value" of the house.

Am I missing anything?
Click to expand...

If you are worried about getting into the habit of putting what should be short-term borrowings on a mortgage (which is what got a lot of people in trouble in the boom) then why not borrow on the mortgage, calculate what the repayments would be at personal loan rates over, say, 4-5 years, and then ensure that an amount equivalent to that repayment is paid each month.

You may prefer to put it on deposit depending on whether you have a cheap tracker, or just overpay the mortgage if it's a SVR.

Just make sure that you can revert to lower payments after the 4-5 years.
 
Current account mortgages are tracker mortgages with a rate of 1.15% over ECB so very cheap at the moment. There is not need to formally increase the repayments so you should not run into problems decreasing them again, you can overpay anytime you like with this type of mortgage once you pay the minimum required payment.

Obviously it is not a good idea to draw down money for a car or anything with a short life span over the remaining term of a mortgage and that is why you have to be disciplined with this type of mortgage, you should ensure you increase the repayments to a level that will clear the extra monies borrowed within the normal life of the asset you bought.
 
Folks,
Thanks for the input. Yes discipline is the key allright.
I would hope to have the load/ car repaid over 4 or 5 years.
Tks
 
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