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Should I use a second mortgage to buy a car in Halton Hills?

Should I use a second mortgage to buy a car in Halton Hills?

Should you use a second mortgage to pay for a car? This is the question asked of one of our Halton Hills car loan team last week.

Cars are a significant investment and one that requires a lot of thought before you commit. Some of that thought should be put into how you’ll pay for your new car and whether to use a car loan or other form of finance. Which is what we’re going to cover today.

Car loan or second mortgage – Which is best?

A second mortgage is an equally serious undertaking. It’s a long term commitment that requires careful thought before you sign on the dotted line.

Rather than make up your mind for you, let’s outline the pros and cons of a second mortgage to pay for a car.

Pros of using a second mortgage

There are a few benefits to using a second mortgage over a car loan in Halton Hills.

Lower interest rates – The current mortgage interest rate is lower than car loan rates. That means you could end up paying much less per month.

Buy the car outright – If you use a second mortgage, you essentially buy your car for cash. The finance is managed through your mortgage company and is secured on the property and not the car.

More flexibility – Some mortgages allow overpayments, early repayments, lump sum repayments and all kinds of mechanisms you can use to repay early. Not all car loans will offer the same.

High chance of acceptance – If you are already paying a mortgage, your current provider will likely look more favourably on any further application you make.

Cons of using a second mortgage

Using a second mortgage isn’t all good news. There are downsides too.

Secured on your home – The loan is secured on your home and not your car. That means any issues with payments could affect your family and not just your credit score.

Longer term – Mortgages are for much longer terms than car loans. That means you could be potentially paying for a car long after you sold or replaced it.

Higher interest over the term – Those longer terms mean paying more interest. While the APR may be lower, the term at which you pay it will be longer. That could mean paying significantly more interest over the term.

Less home equity – Home equity is like a comfort blanket. Something you don’t need on a day to day basis but can help you sleep when things get tough. Using up that equity means one less source of money if things take a turn for the worse.

While we are not exactly unbiased, we would recommend against using a second mortgage to buy a car in the majority of cases. Not only for the reasons above but also because the minimum mortgage amount is often higher than the average car.

This could tempt you into buying a car you don’t really need and spending more than you originally wanted to.

As affordability is a big thing with car loans, we would suggest using a car loan for the amount you need and not a dollar more. It keeps your feet on the ground, prevents any overspending and ensures you get the right car for your needs.

If you need help or advice on anything to do with car loans in Halton Hills, contact Car Nation Canada today, we can help!

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