best way and time to finace a car

[yentil]

pls bear with me i know nothing of money matters. we have a mortgage that we overpay by £250/mth. i have just noticed a 'reserve' amount on our statement which seems to go up every month!? i rang the bank as its a substantial amount (about 17K - and i just noticed it)and asked what it was and they said its the extra borrowing we qualify for so we can draw it for big purchases and pay it back at same rate as our mortgage so a much cheaper loan than the high street.

so i am thinking use this for a much needed car and make extra payments as we would with a lease deal!?

however our 5 year deal ends this year and an IFA we know says that any extra borrowing will impact on our ability to get a mortgage at a good rate in the current climate (we have two children). we earn about 85K/year combined and our mortgage is 210K is this really bad? our house is worth about £350K.

should we just sit tight and not borrow anymore for a car (we would need 18K)

You currently have a mortgage for around 60% of your house value, the higher your loan to value the higher the interest rate you will be offered when remortgaging. The rate will still be significantly lower than interest rate on a loan however if you are taking it on the same term as your mortgage you will be paying interest for much longer so may end up paying more interest in the long term than if you took a personal loan over (say) 5 years to pay for it.

I use this facility on my mortgage for big purchase (in fact all purchases because it is a current account mortgage ). I'd rather pay mortgage interest rates than car finance rates. It is important to stay disciplined and pay off the debt, paying it off over the usual mortgage timescales could be very expensive.

Why would you need 18k for a car? What ARE you thinking of getting?

We need want a 4x4 and we have narrowed down to mercedes ML or hyundai santa fe. all over 20K second hand (don't want anything more than 3 years old) and want to keep it for 5 years as we have all of our previous cars. I would still pay off the reserve divided by 48 months so do not want to include in the term of the mortgage. thats what we did when we last remortgaged (took out a higher amount to buy a car and i didn't even think to pay off early but now the credit crunch has made me think a bit more sensibly -bar the 4x4 which we only want for leg room - we are both extremely tall and cannot fit into a normal car with space left for passengers behind - unless they are 2 foot tall - and don't want another MPV hence why we thought a 4x4). Anyway it seems the reserve is the best way forward IF we ay off early!?

do you think a 60-70% LTV bode well for remortaging with our combined takehome of ~85K?

An Audi A6 has excellent leg room front and back....my DH is 6ft 2 and was very particular about leg room when buying. You really dont have to have a 4x4 to get the leg room.

You should be fine remortgaging on your income with the extra borrowing, however the higher your ltv the higher the interest rate you will be offered (where I work the mortgage deals are up to 60% ltv, if you need higher than this the next is 75% ltv and it's approx 1% higher rate), also you will have 2 separate arrangement fees to pay when remortgaging if you want it on differen terms, and probably an arrangement fee when you borrow the money also. As it's this year you come off your fixed deal, why not way til then to borrow the extra? You may really not find it to be any cheaper than a personal loan tho, especially if you could pay it off in a short space of time instead of over 5 years.

i think i will wait. just rang mortgage company and they say i will be offered better rates when my deal is coming to an end as they will want to keep business so offer preferential rates. also just found out our mortgage is actually 200k now but our home probably now worth 330K as prices fallen! anyway i shall have to be paitent which is no virtue of mine!

There appear to be several Santa Fe at well under £20k, although I don't know the spec you're after. eg, 2010 plate, £17.5k on autotrader, and three year old examples start at under £14k. The value of these things drops like a stone, 5 year old petrol example at sub £5k, 7 year old at under £2.5k. The car will cost you around £200/month in depreciation alone over the five years you keep it. Seems a high price to pay, especially given the outstanding mortgage you have. The Mercedes will cost you a similar amount in depreciation.

If I were you, I'd spend as little as possible on the car you need, and put the remainder into reducing your mortgage. If one of you should lose their income, could you service the mortgage? Your family home is more important than a car.