Refinance car loan

Do refinance car loans work in much the same way as refinancing home loans?

Not exactly. Problems you may run into would be getting a higher interest rate. New cars get nice low interest rates, if the car is a few years old you might not be able to get that rate again. At one point I refinanced a car and was actually able to take equity out of it to put the cash towards higher interest loans. Since it was a used car loan to start and a used car loan at refi the rate would be pretty much the same. Also, since it was the 3rd loan with that bank they knocked it down 1%, kind of a loyalty bonus. This worked out well for me, I got about $1500 in my pocket to pay off 20%+ interest rate credit cards for only about 7.5-8%. However the killer was when I went to trade it in, I still owed a bunch of money and it got rolled into my new loan. Basically I owed way more money on my new car then it was worth the minute I signed the papers. Also, take into consideration the fact that you may not qualify for certain loan lengths based on the age of the car, who wants to write a 6-7 yr note on a car that’s got 2 good years left before it hits the trash heap? Its a different world working with an item that is DEPRECIATING every day vs an item that is or can APPRECIATE.

Hey, speaking of which, here’s a stupid question from a newbie … I’ve always needed clarification about those that take cash out after refinancing their house to purchase investment property. Once you do that, doesn’t it increase your mortgage payment?

Help me out here, what’s the advantage of that?

It will only increase your payment if the loan amount and/or interest rate increase.

Let’s use a “for instance” here:

You buy a house at $200,000
You make payments for a few years thereby paying off say $10,000 of the original loan.
At this point you have $190,000 left on the loan and let’s say 28 yrs worth of payments.
If you refinance today and the rate is the same and you take $200,000 once again and do a term of 30 yrs won’t the payment still be the same?
Of course since you took a loan of $200,000 to pay off your balance of $190,000 you will have $10,000 left in your pocket.
Obviously in this example your payments wouldn’t go up. If your house increased in value to say $250,000 and you borrowed $250,000 you’d be putting $60,000 in your pocket at closing but you’d be getting a higher payment since you are borrowing more money this time around.

Using that scenario, I understand. But when you do the refi, don’t you have a new mortgage at the newly appraised value? Your house is surely worth more two years later, right? How could you arrange it so that the mortgage is still $200,000?

Yes it’s likely worth more but you don’t have to borrow up to the value of the house, just what you need to cover your original loan and to put enough money in your pocket. It’s just like putting 20% down on the house out of your pocket, 20% is already covered so you only have to borrow 80%. Understand?

Ok, I got ya. I guess the key for me was not knowing that you don’t have to borrow up to the value of the house. Now let me ask you this: My wife and I just put a contract on a house for $325,000 and we’re putting down $70,000 in order to get the monthly payments at a reasonable level.

I know there’s a certain time period before you can refinance, but you’re saying that after we do that, we can get a mortgage in the amount of $255,000 ($325,000 - $70,000) and get the $70 grand back? Assuming the interest rate is the same, right?

No. If you purchase as house for 325K and put 70K down your loan to purchase the property will be 255K. If you refinance the 255K you will not recieve the 70K back you will just have a new loan and less equity.
To recieve the 70K back you would have to refinance the full purchase price of 325K and your rate on the new loan of 325K would be higher than the rate on the old loan of 255K. If you really want to keep the 70K in your pocket you can save yourself some time and money by just getting a 100% loan from the start.

I see. Man, I don’t know why I’m having such a mental block with this thing. Right after I posted that, (about getting 70k back) it didn’t sound quite right.

So, if I’ve finally grasped this correctly, the soonest you can refinance is 120 days – and you can only cash out for the amount of equity accumulated from the point that you started paying on it. Is that right?

No. There are some lenders that do not have “seasoning requirements” but they charge you a higher rate to use appraised value not the purchase price. Otherwise, you should wait about 6 months for most conforming lenders.

But even if I wait 6 months, the amount of cash I can get back after refinancing will be practically nothing, right?

Going back to what Rich has said, the only way I can cash out without having my monthly mortgage increase is by using the equity I have been paying in on the original loan amount, not by using the cash I put in as a down payment.

Am I right? Because the root of my question centers around the advantage of refinancing and cashing out to buy investment property. Why do that if your monthy payment goes up?

Not when the property is valued at say 350K and you purchased it under market value for 325K or you purchased it for 325K and made 5K in improvements which incresed the value by 10 or 20K.

That’s what you have to take into account when you’re trying to determine if it’s a good investment property. If the returns from the investment property can cover the increased payment and still get postive cash flow, then it’s worth while to take the money out. Someone else probably knows better, but it’s getting tough to do these because prices rose and interest rates have also gone up. Now prices are falling but not as fast as interest rates seem to be going up so it’s harder and harder to find these deals where the numbers work like that, but they’re still out there, you just need to look harder.

A simpler method to get money might be to do a home equity line where you can do 90% LTV. In your case, that extra 10% would give you $35,000 and that might be enough for a down payment on an investment property. Drawback is that 90% LTV loans are at a higher rate than 80% LTV loans. There’s also 100% LTV loans and those rates are even higher. But if you find an investment property where the price is low enough, it might work because just borrowing the money might be at a higher rate than even the home equity loan. And of course it’s hard to find 100% non owner occupied financing, most will only do 75-80% max.

also, when you refinance you will generally be paying closing costs. so if you owe 190k on a property and refi it to 200k, you wont get 10k at closing. a no closing cost heloc would prob be the best way to get cash out.