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Refinancing, good/bad idea to take out equity for car

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Old 10-03-2012, 12:21 PM   #1
JaSkynyrd [OP] JaSkynyrd is offline
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Refinancing, good/bad idea to take out equity for car

I'm already refinancing in order to go from a 4.5% 30 year FHA to a 15 year Conventional (payment goes up by $135 but no more mortgage insurance and saving $118k in interest) with a 3.1% rate.

My wife's car is a 1998 Qx4 with 150k miles on in and has some issues that we are living with now but if fixed could cost $1500-$2000

How crazy is it to take out $10k to buy her something new (to her)? We've got $4k in cash to help out and then whatever we get for her car.
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Old 11-13-2012, 10:44 AM   #2
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Assuming you could get a car loan for 8% for 5 years, you'd pay less interest with the car loan than you would on a 3.1% home loan for 15 years ($2100 for the car loan, $2500 for the home loan). Even though your loan is a much lower interest rate, you're paying it out over a longer time so more interest accrues. Plus, if you get rid of the car before 15 years, you're still paying on it.

The only advantage is you would be able to deduct the interest and the payment would be less. After deducting it could be about $1500 vs $2500. If you could get a loan for 6%, it would break even despite the write-off. It depends on your tax bracket as to how much you'd save. My guestimate is based on a high bracket of 35%.
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