Car Loan Vs. Home equity Maybe......

[artrenee10]

Got a dilemma, a few weeks ago, sold my GN to put in a better position to purchase a home. Looks like the house is a go, for a good price too My position is that Im dying without my baby and I want her back (or at least a close cousin of hers AKA Turbo T) And I'm caught between taking out another car loan in a few weeks or waiting for about six months and trying a home equity loan. I have pretty good credit (after cleaning it up for the past year or so ) BTW I'm in Chicago, so it isn't like I would be able to drive the car anytime for approximately the next six months or so. What should I do? I'm on limited income, and I have my crib budgeted allready, and I plan on picking up a part time job to assuage my car "bug". I don't plan on paying more than 11,000 for anything in my standards.....someone please help I'm gettin antcy and impatient.
Help me sort the logic and find some method to my madness.
Thanks
Steve Chambers

 

[Pat Adkins]

home equity line of credit can be written off on your taxes at end of year and lower intrest rate than used car loan.

 

[Two Lane]

Definitely makes economic sense to utilize a home equity line of credit versus a conventional loan...but not much makes economic sense owning these cars!

 

[artrenee10]

Guestimating though

How long do you have to own your home before drawing equity?

 

[Two Lane]

Usually depends upon the lender, and how much a subsequent appraisal is over & above the balance owed...although we've also seen home-equity ads saying "We loan up to 125% of your home's value"...bet their rates are more, also.

 

[1badTTA]

I get about 10 offers for equity loans in the mail each week, they are going to be your best bet for purchasing another TR if you can't afford to pay cash. The rates are better than used car loans but not quite as good as a first mortgage.

It all depends on how much equity you have in the house when you buy it (price paid versus price it is worth and also how much you put down.) You are coming in at the end of a trend of low interest rates and higher real estate prices so you won't see much added equity in the next few years unlike if you would have bought a house 3 years ago when the interest rates were over 8% (bought mine for $108,000 @8.5% and is now worth about $135,000-$140,000 and is refinanced @5.5%).

As already mentioned the tax advantages and lower interest will definately make it worth it to buy with an equity loan even if you have to get a slightly higher interest rate from someone offering the "up to 125% of value".

 

[Quick6]

I'm going to go the opposite way on this guys, a home equity loan is just a more PC way of saying a SECOND mortgage on your home and its never a good idea to use your home to buy something, especially a car. You never want to risk the place where you live with a second mortgage for a puchase if you don't have to. I know everyone will say the interest is lower and maybe the interest will be deductible, but miss a couple of those payments for whatever reason and they come to get your home not the car! My advice keep the car loan seperate from your home and if something unforseen happens you will sleep much better. Off my soap box now.

 

[artrenee10]

I feel ya Quick.....

That's exactly what I was thinking.......
I figure taking out a car loan is a bit more safer for me......and I can sleep better at night as well.
Thanks
Steve Chambers

 

[turbojimmy]

You have to decide for yourself, really. If you're comfortable with your earnings situation there's nothing wrong with an equity loan for a car purchase. The financial advantages are there if you have the discipline to pay it like a *real* car loan rather than paying the minimum amount due (then you'll be paying for that car for the rest of your life). You can write off the interest on your taxes but there are rules - check the IRS website for info. I think you can only write off the interest paid on the amount of equity you've *earned* - that is using your PURCHASE PRICE to compute the equity amount, not the market value.

Just be careful with rates on lines of credit. Lots of places are offering low teaser rates that will go up after a certain period of time. Look for a rate tied to the prime rate. My bank is offering prime minus 1.01% for the life of the loan, which would be 2.99%. The prime rate can obviously increase, but it is at a historical low right now. I think it will creep up a bit over the next couple of years (it has to), but should remain very low when compared to a conventional car loan or credit card rates. There are caps, too, but they're typically pretty high (in the case of my bank it's 18%). Some banks have "balloon payments" at the end of the "draw" period, too, that become due immediately if you haven't paid off the loan. They'll take your house if you can't find a means of paying them off.

With a home equity LOAN (versus a line of credit) you get a fixed rate and a fixed period to repay the loan, but the rates are not as attractive (you may as well get a conventional car loan).

If, gawd forbid, for some reason you're unable to make the payments on the equity, there's a good chance you wouldn't be able to pay the mortgage either so you'd have to sell the place. As long as you don't have it mortgaged to the hilt (125% is a terrible idea) you'd be able to get out without too much trouble. You'd still have the car, so you and your family could live in it Real estate value is the one thing that has weathered our poor economy. Some are predicting a burst in the bubble, but you'd only need to worry about it if you need to sell.

So yeah, there's some risk, but as with any risk there are rewards. You have to look at your own situation to decide if it's right for you.

Jim

 

[Carman83ss454]

Quick6 is absolutely right.

NEVER NEVER use an appreciating asset (your home) to secure a depreciating liability (car, boat, ATV's, whatever).

If you borrow against your home for ANY amount and default, there's not a "probability" you'll lose your house, they WILL take it.

A second mortgage and a HELOC are basically the same thing, loans secured by your home's deed, the difference being that a second mortgage is fixed loan amount with a (basically) set payment amount, and a HELOC is a revolving line of credit similar to a credit card. Just charge up to your limit, and the payment goes up accordingly.

All the other points raised such as home equity loans being basically interest free, etc. are correct, but personally, I don't think it's worth the risk.

JMHO,
Scott

 

[GNSCOTT]

If your on a limited budget and just bought a new house, I'd wait a couple of years to see if you need a home equity loan to fix a broken furnace or that hole in the roof that mysteriously appears.

 

[KEVINS]

Do it smartly and it works fine..

I did the Home Equity and here's how I did it.
I had it set up so that I had a separate checking account and that enough money was automatically taken out of my paychecks and put into that account to cover the monthy payment, actually a little more so that the acount will grow. The payment was $177/ month. Then I had automatic payment when that bill was due. It was an account that I just ignored until the car was paid off. I still have that account and money still flows into it for "fun" things.. A nice thing about this method is that you don't need to carry Full Coverage on the car if you don't want to so this saves some $$.

You can always Re-finance the house and take out some extra $$ for the car if the rates are low enough. When I bought my truck I refinanced my home at 5% and took out enough $$ to buy the truck.

ks

 

[KEVINS]

Originally posted by Carman83ss454
Quick6 is absolutely right.

NEVER NEVER use an appreciating asset (your home) to secure a depreciating liability (car, boat, ATV's, whatever).

If you borrow against your home for ANY amount and default, there's not a "probability" you'll lose your house, they WILL take it.

Banks don't want the hassels of repoing your house. They will do whatever they can to help you out in a finanical crisis IF you stay in close contact with them. BUT if you are a bum and don't make any effort to straighten things out then you will find yourself on the street! If you find yourself in financial trouble then your banker better know about it and you better stay in close contact with them to let them know what you have been doing to get things straightened out..

ks

 

[artrenee10]

Great Advice and Information as always

First off, it's just me a single guy, (no jokes here please) and my son possibly. The house is under 80,000 and it needs some work, but I plan on doing this before I even move in (furnace-got the hook up, roofing-got the hook up, plumbing-no hook up, electrical--got the hook up) so I am pretty much set in this category. Yes the home equity works, but I still stand by Quick, I figured that with this being my first home, the economy the way it is, and me starting a new teaching job all in the same year, its a bit hectic, if worst came to absolute worst, I would sell the car in an instant. Plus, I just have this thing about categorizing, I have never believed that you should use the money that's in your house for anything but house stuff, eventually I'll wind up taking it out in about five years anyway after grad school to get a income property but that would be my only purpose. If I need a car, then I get "car money". But I definitely need a place to rest at night. The regals are comfortable but not meant to sleep in I don't think.....
I have seen it happen though
Thanks Again
Steve Chambers

 

[turbojimmy]

Re: Great Advice and Information as always

Originally posted by artrenee10
The regals are comfortable but not meant to sleep in I don't think.....

The fabric would seem to lend itself to sleeping nicely. I had to sleep in the back of my GTO a couple of times - in zero degree weather - and the vinyl is not comfortable at all. Plus you have to keep reaching up front to start the car to get some heat.

Your best bet is to keep the TR off the mortgage if you aren't comfortable. Your gut on these things is usually right.

Jim

 

[artrenee10]

LOL@TurboJimmy

Yeah my dad has a 66 Convertible GTO as well, man that interior is spacious but that leather is hard as concrete.
Below freezing Jimmy? Thats rough!!!
Steve Chambers

 

[GN One Day...]

First, to anyone planning on an equity line for any reason: don't expect to necessarily walk into a refi later on, even subordinating the equity line is still treated as a cash out refi. It has, and will continue, to screw people up. There are limitations on cash out refi's, with the good companies offering the rates you want. This is fairly new. Don't buy a house with less than 20% down, get an equity line, draw money and expect to refi the 1st. It can, of course, be done, but there are LTV and CLTV requirements. CLTV is the total between the new 1st mtg and the CREDIT LIMIT (not balance) on the equity line.
House value: 100,000
1st: 80,000
2nd: bal= $3,000 but credit limit is $20,000
Means you are at 100% CLTV, which isn't the position you want to be in. Most won't even like that.

Anyway, houses that you buy that need NO work, will need work. A house that you know up front WILL need work, will need a LOT of work. Just like a car. Buying a house is a lot more expensive than down payment and closing costs.

Here's my advice: like you said, you can't even drive it until next Spring. Work you tail off, like if you had the car now. Take that $500/mo or whatever you would be spending (car note, extra gas, insurance, parts), and put it in a new money market account EVERY MONTH. Just like you had the car now. By the Spring, you'll need to borrow a lot less money. My thought is that this attempt will help you *realistically* decide if you can afford the car or not. Especially if you aren't sure yet if you'll also be taking on extra house and son expenses. Don't add a 3rd draw on your income until you've tested yourself with the 2 that are most important.

Equity lines are fine for whatever you want to spend the money on, but make sure it's worth the risk of being UPSIDE DOWN in your house. You can probably get a rate lower than on your 1st mtg, but most likely it will be more like a credit card than a loan. I.E. interest only payments. You may end up paying A LOT MORE for the car than if you'd have gotten an installment loan, since you could put off real payments on the car and spread it out over 10-15 years. To use an equity line properly, you have to have a lot of restraint and will power. If you had to sell your house, remember you'd oftentimes be paying 6% to realtors, a few thousand for house repairs, closing costs etc. Then pay off the 1st and 2nd. Then hope to make some money. Just be careful and think it out. Usually, patience will tell you what to do.

 

[turbojimmy]

Re: LOL@TurboJimmy

Originally posted by artrenee10
Yeah my dad has a 66 Convertible GTO as well, man that interior is spacious but that leather is hard as concrete.
Below freezing Jimmy? Thats rough!!!
Steve Chambers

Yeah, back in college I spent more than a couple of nights camping out in my car after football games in State College, PA. I distinctly remember one winter it was brutally cold out. My bud said he knew some guys we could crash with. Got there and they had gone home for the weekend. Nowhere to stay we camped out in the Pontiac. We took turns with the back seat because there was no way to sleep in the buckets. The ice on the INSIDE of the windows was like an inch thick from us breathing in there all night. Ahhhh......good times.....

Jim

 

[87ttypeV8]

well i have a home equity for my car... well my dad took one out for me

how can he write it off on his taxes?
it is for 4000$ and will be payed off in a few months... i made some big payments as this hasnt even been for 6 months...
so how can he claim this? he always complains and says how he should be able to drive the car since he took out the loan... but he will never get the pleausre... i would just like to be able to tell him that this will actually get him some money back but just dont know how that will work out?

 

[GN One Day...]

http://www.irs.gov/pub/irs-pdf/p936.pdf
-right click and "save as"-

If that doesn't work, go to www.irs.gov and go to publication 936 and download. Your Dad probably knows this already though.