Is it worth refinancing your home to include your car loan to claim the interest on the car loan?

Question

I have a mortgage at 6% and I have been told for tax reasons it is good to refinance the house, just not sure if it is worth the expense to refinance; will it help that much with the interest I claim.

Answer 1

Impossible to know with this much info. Depends on the interest rate you'd get on the refi, how much is on your car loan, your current tax bracket, the rate of interest on your car loan, etc.

It won't make sense to roll the car into the home loan if you end up saving a few grand on taxes now, but end up paying several years more of interest on the home loan. If you had a higher interest rate, the refinance might make more sense.

For starters, do an amortization table now and figure out how much you'll be paying on the lifespan of your current mortgage. Then do another one plugging in the amount you'd pay with a refinance, including the expenses.

Answer 2

Some good thoughts and concepts above!!

You do not mention if you have refinanced in the past or taken out a prior equity mortgage. Assuming no to either, car loan or no car loan, you can refinance your existing mortgage plus up to $100k in equity and all the interest is deductible. The questions need to be:

Can I get a rate lower than my current mortgage?
Can I get a rate lower that other debt I am paying on?
Of what is left of the $100k, can I earn more than the rate of the mortgage?

Other posters comment about exchanging 5 year debt for 30 year debt is an accurate comment IF you will be in the house longer than 5 years. Otherwise I agree with the one post of totaling all of your current debt payments, comparing that to the new monthly payment of a new mortgage that is used to payoff all your existing debt and compare the savings to the loan costs. That is how I would approach it.

Answer 3

Your interest rate is VERY good in today's market. Unless your OVERALL mortgage balance is less than $90k or so, I wouldn't even consider it. Despite what all the posters are advising, your costs CAN BE minimal. I'm a mortgage broker and costs can be as little as .75% of your loan amount. Escrow and title companies will pass off additional savings called, "short term" rates. Lenders will up your rate to receive a "Service Release Premium" (or rebate), so that you trully have a ZERO cost loan.

You should really take this question to your CPA (or to you tax program if you do your own taxes), as he/you will be the only qualified people to answer this question due to variables such as income, deductions, mortgage balance, ... etc. If you have a $200k loan balance on your car at a high rate, then yes refinance. These are obvious solutions.

Bottom line is that you have a VERY good rate on your mortgage now and I seriously doubt you'll be able to find a lender who will match that rate and pass off a ZERO cost loan to make it cost effective. This is making the assumption that you have a 6%, 30 year fixed rate, with no balloon or variable feature.

Answer 4

I wouldn't. Most car loans are for 5 years or less. Even the worst of them are 7 years. Mortgages are typically 15 or 30 years. Do you really want to still be paying off a car 10 years from now that has long gone to the junkyard?

The minimal deduction you'll get for the added interest is not going to be worth the expense of a refi. And with a 6% loan right now you may even have to step that up a bit for the "privilege" of getting maybe $50 in tax savings. Bad move financially all around, IMHO.

Answer 5

The most it would help is the amount of interest times your tax bracket. If you're in a 15% tax bracket, your tax benefit would only be 15% of the total interest on the car.

It's possible but unlikely that the savings would pay the cost of refinancing.

Answer 6

probably not, the re-fi cost is going to offset any gain from interest deduction