I’m coming to the end of my lease and decided I’m going to buy out my car. Normally, I’d do a normal car loan and be done with it. The buyout is about $55K with taxes.
However, my current mortgage lender sent an email that I can lower my rate about 1/2 a point to 2.375% on a 15 year. I’m 4 years in on my 15 year currently, and I dont plan to move anytime soon. I don’t like the idea of starting over on the mortgage but I could cash out to pay for the car and still have about 40-45% equity in my house at current market rates and my payment would be less than it is today.
Oh, before the Dave Ramsey’s and Suze Ormans chime in, I could pay cash for it but I like to have at least a years worth of expenses in savings.
Is this a bad idea?
Get a traditional car loan or refinance my house?
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Not a fan of the idea.
1. $55k is a crap-ton of money for a car, especially after you've presumably been making payments for at least 2 years already.
2. Refinancing isn't free. You're going to pay fees. Mostly likely in the $1k-2k range. You can roll those into your new loan, but it's still money being spent. Plus a greater share of your monthly payment will now be going to interest rather than principle.
I would suggest either financing the $55k or just starting over with a cheaper car. A quick google on auto rates looks like they are around 3%. I don't see the advantage of taking that equity out of your home when rates are not that much different. -
The fees and costs associated with a refi will not make it worth shaving .5%, especially on a 15 year which does not accrue a lot of interest. Skip the refi unless you can knock off closer to 1%.
If you are going to drive high end vehicles, you should just keep leasing. The lease terms on high line vehicles are very generous because the vehicles make a lot of money after they are turned in and resold. You actually come out way ahead just by continuously leasing a luxury vehicle instead of buying. A three year old high end vehicle is only going to depreciate like a sinking stone over the next few years and the odds of a big repair bill just keep going up and up. The German imports are over engineered and have very tight tolerances. Once something goes wrong, it really goes wrong and is expensive to repair. There were several model years of the BMW 7 series that just kept blowing engines. You are in a much better position to just lease and always be under the bumper to bumper assuming that you make enough that you do not even feel the lease payments.
Plus, what is the point of driving a high line vehicle if you aren't always in the latest greatest version? If you are going to put all that money into a vehicle, you may as well have a nice new vehicle every three years. There is nothing fun about driving a smelly used up 2010 BMW. -
Stupid plan. How about just sign up for a reverse mortgage to gain cash access.
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If you can't pay cash and have an emergency fund after purchase than you just can't pay cash for it. You're fooling yourself.
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Can you tell us the make of the car? I am not going to disparage you, I am just curious. $55K is a lot for a used care that you've been paying on for years at this point.
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So you want to finance a used car for 15 years?
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Is it a BMW or a Range Rover? If so, run away, unless you have warranty.
If it's a Porsche, maybe. -
Ace_of_Base wrote:
If you can't pay cash and have an emergency fund after purchase than you just can't pay cash for it. You're fooling yourself.
I’ll still have about a year emergency fund after paying cash for the car but not at my current lifestyle. I’d have to cut back on discretionary items. I also have money tied up in a private investment, and I’m about to put a good chunk more into another private investment. -
It’s a 2018 M3 Competition with 24,000 miles. Sticker was $87K new.
I’ve leased a half dozen cars and have never purchased on at the lease end. However, this is a rare color combo, and now with work from home I hardly drive I could keep it with fairly low miles. Unlike standard BMWs, low production M3s with low mileage hold their value well. Sure I’ll have some maintenance costs down the road but that comes with the territory for a high performance car.
I thought the refi was probably not a great idea. I just have been prepaying my principal and starting to think I’d rather put my money to work than pay down 2.8%. I know paying the car doesn’t achieve that, but it would allow me to use more of my existing capital for investments. -
Aren't refinancing fees always far more than you realize? Have you ever had a pleasant real estate transaction closing - even refinancing
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Why try to save .5% on a 15 year loan that you have already paid 4 years of front end interest only to start paying front end interest on a new loan again?
Take the money you would have to pay to refinance and pay that on the principal. You'll more than make up the money you would save on the .5%.
There is ABSOLUTELY NO way I would finance $55k on a car. Thats just throwing money away. You'll never build wealth like that. -
Rainy Day wrote:
I’m coming to the end of my lease and decided I’m going to buy out my car. Normally, I’d do a normal car loan and be done with it. The buyout is about $55K with taxes.
However, my current mortgage lender sent an email that I can lower my rate about 1/2 a point to 2.375% on a 15 year. I’m 4 years in on my 15 year currently, and I dont plan to move anytime soon. I don’t like the idea of starting over on the mortgage but I could cash out to pay for the car and still have about 40-45% equity in my house at current market rates and my payment would be less than it is today.
Oh, before the Dave Ramsey’s and Suze Ormans chime in, I could pay cash for it but I like to have at least a years worth of expenses in savings.
Is this a bad idea?
Look into a refi and see if you can get one that does not cost you anything or add to the principal. This fall I was able to get a couple of lenders going and I was able to get enough lender credit to cover a refi to a good rate and actually get the lender to cover all fees and kick in extra. What the Fed is doing has caused some market distortions that favor the borrower.
$55K for a buyout seems ridiculous. Seems like you're driving a car beyond your means. But I've never personally been into spending much on cars which are a heavily depreciating asset. -
I was going to take $20k out of stocks to buy a used car, but car loan rates are like 3%. Surely I could do better than that investing.
Wondering what I should do. -
Primo Numero Uno wrote:
$55K for a buyout seems ridiculous. Seems like you're driving a car beyond your means. But I've never personally been into spending much on cars which are a heavily depreciating asset.
What makes you think this is beyond his means?
He gave no indication of his income or his debt level.
And he said he has the money to pay it off in cash right now. -
negative wrote:
Why try to save .5% on a 15 year loan that you have already paid 4 years of front end interest only to start paying front end interest on a new loan again?
Take the money you would have to pay to refinance and pay that on the principal. You'll more than make up the money you would save on the .5%.
There is ABSOLUTELY NO way I would finance $55k on a car. Thats just throwing money away. You'll never build wealth like that.
Not sure if you read my second post. I have the money, but I’m about to invest a decent chunk of it in income generating opportunities, namely buying a business and warehouse with a couple of partners. I also have capital tied up in a current investment that I may get back in the next couple months. Refinancing with a cash out would give me some additional capital to work with now. However, I agree it’s not worth the front end interest load to start over even at a lower rate.
As far as the car goes, I will probably only put 5K miles per year on it. When it’s paid off it should still be worth about $40K, so I’m really only paying a little over $3K per year to own a low production, high demand car.
I may spend more than I should on cars, but I’m a huge car guy. -
X-Runner wrote:
Primo Numero Uno wrote:
$55K for a buyout seems ridiculous. Seems like you're driving a car beyond your means. But I've never personally been into spending much on cars which are a heavily depreciating asset.
What makes you think this is beyond his means?
He gave no indication of his income or his debt level.
And he said he has the money to pay it off in cash right now.
I have no debt other than this car and $200K on my mortgage with my house worth $500K. I’ve been maxing my 401K for 10 years and contributed a smaller amount the previous 5 years. I make a pretty decent income. -
Rainy Day wrote:
I’m coming to the end of my lease and decided I’m going to buy out my car. Normally, I’d do a normal car loan and be done with it. The buyout is about $55K with taxes.
However, my current mortgage lender sent an email that I can lower my rate about 1/2 a point to 2.375% on a 15 year. I’m 4 years in on my 15 year currently, and I dont plan to move anytime soon. I don’t like the idea of starting over on the mortgage but I could cash out to pay for the car and still have about 40-45% equity in my house at current market rates and my payment would be less than it is today.
Oh, before the Dave Ramsey’s and Suze Ormans chime in, I could pay cash for it but I like to have at least a years worth of expenses in savings.
Is this a bad idea?
You would need to do an analysis if refinancing your home would be in your favor. It's not just about "savings" it's about Net Present Value. But 4 years in on an existing 15yr mortgage I'd wager not worth it, but it may be close. 4yrs ago 15-yr rates were still low; maybe 3.25%. And judging by the letter you received, I would also wager that your closing costs (prepaids, escrow, legal, etc) will be north of $10k.
You should be able to find a cheaper loan on your, rather than a 15-yr refi. If you need to amortize your car over 15 years, you have other problems. But go to a local bank or credit union, you should be able to find decent rates. I just looked up used car loan for 5 yr at my local credit union and it's 2.44%. -
Dumbest car purchase that I have ever heard of.
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Run the numbers for both scenarios and do the one that is cheapest. It’s not difficult to figure out with a spreadsheet
