which loan to put extra into?

[JHF1870]

I'm a bit lost on the math for this one, I've forgotten from school.

My homeloan repayments are $290.5 per week, I was paying $316, now I'm paying $390. And I also have $500 extra in the account.

Mortgage 222,000
Owing 210,500
term 27yrs 8months (Actual term I started with)
interest rate = 5.18%

Car loan (7years)

I've just hit the 6th year, and interest rate went up to 11.5%

I owe $7,400, and I'm randomly putting in $1000 at a time, as opposed to weekly payments.

question is, what would I be better putting my extra money into. My feeling tells me its the homeloan, given the short term left on the car, but I may be wrong.

any help would be awesome

 

[Lyyynnnchy]

I'm a bit lost on the math for this one, I've forgotten from school.

My homeloan repayments are $290.5 per week, I was paying $316, now I'm paying $390. And I also have $500 extra in the account.

Mortgage 222,000
Owing 210,500
term 27yrs 8months (Actual term I started with)
interest rate = 5.18%

Car loan (7years)

I've just hit the 6th year, and interest rate went up to 11.5%

I owe $7,400, and I'm randomly putting in $1000 at a time, as opposed to weekly payments.

question is, what would I be better putting my extra money into. My feeling tells me its the homeloan, given the short term left on the car, but I may be wrong.

any help would be awesome

Car loan, get rid of it

 

[sammm]

Car loan, get rid of it

agree. Pay the correct amount on the home loan, and pay the car loan off asap. the reason being is that the interest on the car loan is much higher (11.5%) then your mortgage (5.18%). then when you have paid off the car loan, pay that same amount into the mortgage as well as what you were paying.

 

[Power Raid]

even if the car loan was tax deductible it would still cost your a lot more than the mortgage.

In fact, I would draw down off your mortgage again (if you can) and get rid of the car loan. Do the same for your credit card if you owe anything there.

 

[Halloween Jack]

even if the car loan was tax deductible it would still cost your a lot more than the mortgage.

In fact, I would draw down off your mortgage again (if you can) and get rid of the car loan. Do the same for your credit card if you owe anything there.

Agree with this, but don't fall into the trap of drawing on your home loan to pay car loans and credit cards then just paying the minimum home loan repayment. You end up paying for the car over 30 years, costing you a fortune.

Draw down the mortgage, and those funds you were paying to the car loan direct them all to the home loan. If your lender allows you to split the loan at no cost consider this so you can keep the home and car loan seperate, and get rid of that car loan quickly.

 

[JHF1870]

Agree with this, but don't fall into the trap of drawing on your home loan to pay car loans and credit cards then just paying the minimum home loan repayment. You end up paying for the car over 30 years, costing you a fortune.

Draw down the mortgage, and those funds you were paying to the car loan direct them all to the home loan. If your lender allows you to split the loan at no cost consider this so you can keep the home and car loan seperate, and get rid of that car loan quickly.

Thanks, I understand why I got confused. at one stage I considered adding the car loan to the house, and thus like you said, I'd be paying interest over the 25+ years.

 

[Power Raid]

Thanks, I understand why I got confused. at one stage I considered adding the car loan to the house, and thus like you said, I'd be paying interest over the 25+ years.

in short pay off your debts as soon as you can
pay off your most expensive debts first
in future try and only borrow for asset building or income building reasons


good luck

 

[Ghostwriter]

Shouldn't have bought the house until you'd paid off the car.

 

[JHF1870]

Shouldn't have bought the house until you'd paid off the car.

car came after the house, then I decided to go to uni, not great timing, maybe I could have been alittle more patient and waited another year.

 

[JHF1870]

So I've re-evaluated the situation, and totally forgotten about the equity in my home.

All things going well I might have 35K to play with. The idea is to pay off the loan with the money and use a redraw facility, so I only pay interst on the money borrowed.

The goal is to use some of that money while I'm studying at uni, and come back home during the holidays to work hard. If I get the money, I can move to the city and seek out an additional day of work, which will keep my weekly losses at uni down to $150. If I work 2 days, I'll break even.

Assuming I get no days, extra work, I'll lose approx

$1800 in the first half of semester 1. Gain back about $200 ($1600)
$1800 in second half of s1 Gain back about $400 ($3000)
Same again for second semester. $6000 down while at uni.

I should be able to easily earn that back over the 13-14 week break with all the overtime I do. So I think I need about 9K max to cycle with.
I really need to spend about 3K on house renovations.

The question is, with the $22k would it be a wise decision to use that money in any form of investment, such as shares or other investments, or is it better to play it safe and leave it in the loan, or not borrow it all together. I just like the idea of having the money there if I need it, and not have to go see the bank again. But I also like the idea of investing with the low interest rate of 5.18%

20K throughout the life of the loan should save me about $42K in interest.

 

[sabre_ac]

The question is, with the $22k would it be a wise decision to use that money in any form of investment, such as shares or other investments, or is it better to play it safe and leave it in the loan, or not borrow it all together. I just like the idea of having the money there if I need it, and not have to go see the bank again. But I also like the idea of investing with the low interest rate of 5.18%

20K throughout the life of the loan should save me about $42K in interest.

Until you graduate university and have a secure line of income, your main priority should be paying down debt and not going into any further debt.

What are you studying? (If you don't mind me asking)

The share market (particularly the Australian) is very volatile at the moment and keep in mind the US just came off a year of record returns so there is allot of seasoned investors out there taking profits and sitting on the sidelines.

 

[JohnW]

The bank may not let you withdraw your equity, they will ask you what it's for (they may not like that it is for living expenses), and how you intend on repaying it. I am not sure the answer of working in my downtime from uni will cut it.

 

[Lensen]

when you say you have $35k in equity, do you mean $35k between the loan balance and your house value, or $35k between your loan balance and 80% of the house value

if you owe $210500 and your house is worth ~$245k then you won't get access to the $35k and even the $10k or so you can access with be both difficult and expensive, both due to the requirements of mortgage insurance (i.e. you both have to pay for it and also satisfy their additional requirements)

 

[JHF1870]

doesnt

when you say you have $35k in equity, do you mean $35k between the loan balance and your house value, or $35k between your loan balance and 80% of the house value

if you owe $210500 and your house is worth ~$245k then you won't get access to the $35k and even the $10k or so you can access with be both difficult and expensive, both due to the requirements of mortgage insurance (i.e. you both have to pay for it and also satisfy their additional requirements)

matter it got valued less than 2010. i was hoping rennos would take it to 275. to the other post bank doesnt care what you spend it on. so long as they get money back from house

 

[Lensen]

to the other post bank doesnt care what you spend it on. so long as they get money back from house

absolutely they care. this isn't 2007. up to 80% overall loan to value ratio they'll probably want just confirmation as to what it is (i.e. you say $20k for xyz renos) but if you're in mortgage insurance territory i'd be surprised if any fairly mainstream lender would give you the funds without evidence via quotes etc

 

[JHF1870]

absolutely they care. this isn't 2007. up to 80% overall loan to value ratio they'll probably want just confirmation as to what it is (i.e. you say $20k for xyz renos) but if you're in mortgage insurance territory i'd be surprised if any fairly mainstream lender would give you the funds without evidence via quotes etc

nup. i borrowed money in 2010. did not care. i bought cameras and other unrecorded items

 

[JHF1870]

also lmi is only payable on extra borrowed so long as you dont alter the loan term

 

[Lensen]

nup. i borrowed money in 2010. did not care. i bought cameras and other unrecorded items

what did you tell them you were spending it on?

the introduction of NCCP since 2010 has also changed lending and information requirements. again, up to 80% is a lot more flexible, but LMI providers tend not to be

 

[JohnW]

all the banks we have dealt with (in WA) have asked the question. As above they are even more strict if you have a high debt to equity ratio.

The combined factor of not being in full time/permanent employment and wanting the funds to to fund living costs, would have me raise an eyebrow if I wear a bank. There is two sides to the equation being able to provide security for the loan and being able to service the loan.

 

[JHF1870]

all the banks we have dealt with (in WA) have asked the question. As above they are even more strict if you have a high debt to equity ratio.

The combined factor of not being in full time/permanent employment and wanting the funds to to fund living costs, would have me raise an eyebrow if I wear a bank. There is two sides to the equation being able to provide security for the loan and being able to service the loan.

Banks have never asked for receipts. I've just told them rennos and other stuff. My income is still 54k after working and rental income. My income is heavily lop-sided however, towards november-februrary.

besides, its not happening anyway, my value went down. back to the drawing board.

 

[JohnW]

Your value going down, is why they ask the question.

 

[JHF1870]

Your value going down, is why they ask the question.

In 2010 I didn't havve to provide any receipts, may have changed now. Doesn't matter. Market should boom again in the next few years looking at history. From memory wasn't it like 1993-2000 ish we had a down period.

 

[JohnW]

We live in a different world now than what we did in 1993-2000. I am not a fan of using historical data as fact.

I cant help but think that interest rates have to go up at some point, which could have a negative effect on property growth.

 

[JHF1870]

We live in a different world now than what we did in 1993-2000. I am not a fan of using historical data as fact.

I cant help but think that interest rates have to go up at some point, which could have a negative effect on property growth.

We did have a period where Housing prices went up way beyond that of wages. Now we've had a good 7 years of housing prices going down and wages going up. Affordability is improving. Housing prices will boom again, at some stage.

 

[JohnW]

At some stage maybe. Soon, i'm not to sure. Also it depends on your definition of boom.

If rates go up there will be lots of folk under pressure to meet repayments and less new home buyers. Just my opinion.