A mortgage and car loan are often bundled during refinancing. The loan is considered a cash-out refinancing, which has both benefits and drawbacks. The main benefit is that the car note disappears as the cash-out pays off the loan and removes the burdensome monthly payments. The primary disadvantage is that the interest on that car loan principal gets spread out over a 30-year mortgage and costs more in the long run.
Refinancing Your Home
Consider the benefits of refinancing your home. The interest rate on the original mortgage may be higher than current rates. If the savings translate to lower monthly payments and less money to pay for the home overall, then it is a very good option. Using your equity for cash-out refinancing to pay off other loans will raise the monthly payments and stretch out the other loan amounts over a 30-year mortgage period.
Adding in the Car
Consider the car loan principal and its monthly payments. Several car loans have been written with interest rates as low as 1 percent. Even as such, the monthly payments over a short term are considerable. If the absence of a car payment is favorable over a slightly higher monthly mortgage payments and more money in total payments over the duration of the loan, then mortgage and car loan consolidation is a preferable option.
The Total Loan Amount
Add the remainder of the principal on your car loan to the remaining balance on your mortgage. Factor in closing costs unless funds are allocated to cover it. Any outstanding credit card debt or medical expenses may also go into the refinancing loan if there is enough equity to cover these debts and maintain a respectable margin. Some lenders want at least 20 percent of the overall value to remain in equity when refinancing.
Alternative Options
Measure the cost of financing the car within the mortgage. Adding the car balance to your mortgage will often make the new monthly house payment higher even at a reduced interest rate. Consider paying off the car with an equity loan at a lower interest rate. If the payments on the mortgage and equity loan are acceptable, then it may make more sense to leave the car note out of the new mortgage.