Whether you want to free up your budget or take advantage of lower interest rates, you may be wondering, “Can I refinance my mortgage and car loan at the same time?” It’s entirely possible to refinance your mortgage and car loan together, but you’ll want to carefully consider your options before doing so.
Drivers who don’t do their homework could end up paying a lot more for their vehicles if they convert their car loan debt into a home loan. We at Home Media’s review team have compared the best auto refinance rates in the market to help drivers learn how to responsibly repay car and home loans.
How to Refinance Mortgages and Auto Loans at the Same Time
The main way to refinance a mortgage and a car loan at the same time is to opt for cash refinance and use the equity in your home to pay off the car loan. In this case, you will start a new loan that will cover the rest of your home loan plus the auto loan balance.
Combining mortgage and car loan: pros and cons
While it can be tempting to combine your auto loan and your home loan, there are some serious downsides to doing so. Below, we’ll explain some of the pros and cons of combining home and auto loans using cash refinance.
Paying off car loan debt through your new mortgage extends the car’s repayment period to 30 years. This means you’ll be paying interest on your refinanced auto loan for a much longer term, unless you make additional payments.
You can avoid this extra interest by making additional monthly payments on top of your mortgage for the amount of your auto loan. If your overall goal is to have a lower monthly payment, it defeats the purpose of combining these two loans.
Should I refinance my mortgage and car loan together or separately?
It is true that stretching a car loan over 25 years makes each payment more affordable. In the example above, however, you would be paying over $14,000 in interest on a loan amount of $20,000. Same car loans for bad credit have loan-interest ratios that are better than that.
How to Save Money by Refinancing a Mortgage and Car Loan Together
There is a way to refinance a mortgage and a car loan at the same time while saving money. You will need to make additional payments each month to cover car loan debt under your mortgage. Here’s what this scenario looks like compared to a standard car loan:
In the example above, you could pay off your original car loan with your mortgage in five years and save almost $1,000 in interest. However, you will need to pay $375.59 per month on top of your mortgage payment for this to happen.
Are you eligible to refinance your mortgage?
Consider the factors below to find out if you might be eligible to refinance your mortgage.
- Credit score: As with any loan application, the potential lender will review your credit report and the state of your personal finances. A positive credit history and financial situation could help you get lower rates on a combined mortgage and car loan.
- Equity: You need enough equity in your home to pay off the auto loan and to maintain at least 15-20% equity thereafter. If you end up with less equity, you’ll have to pay for private mortgage insurance and might not even qualify for a refinance.
- Debt-to-income ratio (DTI): Lenders generally prefer that your debt repayments not exceed 40% of your overall income, as this could indicate that you will have difficulty repaying your debt.
- Loan-to-value ratio (LTV): When refinancing, the new lender will generally require an LTV of less than 125%. This means that your loan cannot be more than 125% of the actual value of the house or car. If you have bad credit, the lender may require an LTV of 90% or less to reduce the risk of loan rollover.
Be sure to check your existing loans for prepayment penalties, as 36 states and the District of Columbia allow your current lender to charge penalties if you cancel a loan less than 60 months old.
How to Refinance a Mortgage and a Car Loan Separately
Nothing prevents drivers from refinance a car loan and a mortgage at the same time but separately. By doing so, you could avoid paying decades of interest on your current car loan and won’t be using the equity in your home to pay off your debts.
Generally speaking, it makes more sense to refinance home and auto loans separately than to combine them. You just need to think about when to refinance your car and your home based on your financial goals and credit history.
When to refinance your mortgage first
In many cases, it makes sense to refinance your mortgage before your car loan. Since serious credit inquiries can hurt your credit score and are required for both inquiries, it’s a good idea to refinance your largest loan first. It takes between 30 and 60 days to complete a mortgage refinance, so you will have to wait that long before you can start refinancing a car.
When to refinance your car loan first
You may want to start with an auto loan refinance if your debt-to-equity ratio currently prevents you from refinancing your mortgage. Even though your credit score will take a hit, refinancing your car loan can lower your payments and potentially improve your DTI ratio. This could increase your chances of qualifying for a mortgage refinance in the future.
Our recommendations for car loan refinancing
Although you can refinance your mortgage and car loan at the same time, it’s usually beneficial to manage them separately. We recommend comparing auto refinance terms and starting annual percentage rates (APRs) from various providers and credit unions as a responsible way to begin the process of paying off your auto loan.
Automatic approval: first choice for refinancing
From April: 2.25%
Loan amounts: $5,000 to $85,000
Loan conditions: 12 to 84 months
Auto Approve works with a network of lenders to offer refinanced loans for different types of vehicles. To qualify, your car must be less than 10 years old and have less than 150,000 miles on the odometer. Auto Approve works with borrowers who have fair and superior credit. The company has a A+ rating and Better Business Bureau (BBB) accreditation.
Keep reading: Automatic Approval Review
MyAutoloan: the most popular marketplace
From April: 1.99%
Loan amounts: minimum $5,000
Loan conditions: 24 to 72 months
You can use myAutoloan to shop around and compare multiple refinance lenders at once. Borrowers with excellent credit can find loan offers with rates as low as 1.99%. MyAutoloan has been in business since 2003 and maintains both a A+ rating and BBB accreditation.
Read more: MyAutoloan Review
Because consumers rely on us to provide unbiased and accurate information, we’ve created a comprehensive rating system to formulate our ranking of the best car loan companies. We’ve collected data on dozens of loan providers to score companies on a wide range of ranking factors. The end result was an overall score for each vendor, with the companies scoring the most points at the top of the list.
Here are the factors taken into account by our assessments:
- Reputation (25% of total score): Our research team considered ratings from industry experts and each lender’s years in business to assign this rating.
- Prices (25% of the total score): Auto loan providers with low APRs and high loan amounts scored highest in this category.
- Availability (25% of total score): Companies that cover a variety of circumstances are more likely to meet consumer needs.
- Customer experience (25% of total score): This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness and helpfulness of each lender’s customer service team.
*Data correct at time of publication.