519-646-2222Car Loan Mortgage
The latest money-making venture for mortgage lenders is car loans, yup, a car loan mortgage. Here’s how it works. So, you have a little equity in your house, a heartbeat and a pen, that’s all you need. Oh, and you really, really want a new car. You tried the dealership, but your credit rating is a bit sketchy and the bank says it will do the deal through its “auto finance” division for 29.9% interest.
Your friendly mortgage broker offers you a deal whereby you can get the $30,000 car of your dreams at the low, low interest rate of 8.9% interest with a ten-year amortization and a two-year term. You can have the car with a car loan mortgage that will cost you an arm and a leg.
You must pay a fee for the broker, and you must pay legal fees for the lawyer to register the loan against your house. Most often these fees are buried in the car loan mortgage and you will pay interest on those fees as well as the principal of the loan. Bottom line is you will pay a lot of interest even at the low rate of 8.9%.
After the initial two-year term of the loan is up you must renegotiate your car loan mortgage for a new term or get a bank loan to buy it out. After the accumulation of fees and interest paid on them you still owe pretty much the $30,000 your borrowed to buy the car, which has by then depreciated considerably.
Now your choices are:
1. if your credit rating has improved get a new bank loan to pay out the car loan mortgage and pay the bank rate, which will likely still be too high, or
2. renegotiate the term for another two years at a new interest rate – and since the overnight is trending upwards (driving up the rates of bank lending) you will likely end up renewing at a higher rate for another two years.
Bottom line, don’t do it…