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Originally Posted by Pops
Here's what I'm doing in a nutshell with ballparked numbers, you guys have been just assuming that I've been living beyond my means. 
My goal was originally to lower my payments but as I statrted looking into it, I can lower my intrest and raise my risidual and use the difference to payoff some bills. Right now, I'm paying about $2000/mo in House payments on a 6.25% 30yr mortgage that I signed on 5yrs ago so I have 25years left. The intrest rate I can get now is 5.75% so if I lower the intrest with keeping $2000/mo for 25yrs, that gives me about $34,000 after closing+taxes to pay a couple cars off with. Here was my rough draft thinking:
$2000/mo x 25yrs = $720,000
6.25% = $450,000-intrest $270,000-Principle
5.75% = $414,000-intrest $306,000-Principle
That's $36,000 difference. I think the Closing+Tax runs somewhere around $2k but I'm not up to speed on that part, but I'm pretty sure I'd still have over $30k difference when all said and done.
So basically, I'd keep my existing monthly bill but move some of the $$$ being paid into intrest over into usable funds. $30k over 30yrs only comes to about $100/mo savings on payments and since wifey did decide to quit working, I'd rather get out from under at least 2 - $400/mo car payments (totalling $800/mo for the next 3 years) than worry about saving $100/mo over 30yrs. |
Pops, not getting down on you or saying anything about your spending habits. The difference you need to pay attention to is the fact that even at a higher interest rate on a normal auto loan, let's say 10%, you are still likely going to pay less in interest over the life of the auto loan (unless it's really high) than you are going to pay in interest on the "auto-loan" part of your mortgage.
Here are some rough numbers:
Let's say you have a high interest payment on your car, which would make this a "best" case situation for wanting to move to a lower interest payment. Let's use 10% and you financed $20,000 for 5 years.
Your monthly payment would be $424.94 and you would end up paying $5,496.45 in interest over the life of the loan.
Now, let's say you roll that same $20,000 into your house payment at 5.75% for 25 years.
Your monthly payment on the car portion of your loan is $125.82
Your total payments will be $37,746.38 and you will pay $17,746.38 IN INTEREST on a $20,000 vehicle.
Put another way, this transaction would only really make sense if the interest rates you were paying on your car loans (over 5 years) is a whopping 28.5%.
Technically speaking, this isn't correct either, since there is a time value of money. So the difference between the car loan and rolling it into the house isn't quite as large as $17.7K minus $5.5K since future payments are worth less than current payments. However, you are still paying substantially more in "today's dollars" in interest if you roll them in (at least double the 10%/5year car loan's interest). What's more is that your $34,000 suffers the same fate. You are not saving $34,000 in real terms, only nominal terms. In other words, that $34,000 is saved over the entire life of the loan but the benefit of the monthly savings is substantially lower in the later part of the loan because that money will be worth "much less." For every dollar you save in year 25, it is only worth $0.48 in "today's dollars" assuming an inflation rate of 3%. In year 20, every dollar is $0.55. Year 15, $0.64. Even in year 10, it's only $0.744. Your $34,000 is roughly $113.33 per month which using inflation at 3% makes it worth $23,898.63 today.
The difference (read loss) only gets "worse" if you are paying a lower rate on your car loan, have a higher principal, or if the loan is for a shorter period. In my opinion, from what you have told us, the numbers just don't work for what you want to do. You are losing money by doing this, a lot of money.