Should you use a second mortgage to buy a car?

 If you need a car and have equity in your home, you can use a home equity loan or second mortgage to help. But before you even just a borrowing you’re going to need to know how much you need to borrow! You want to do some research, check out your credit report, and make sure you have enough equity to borrow against your home. After all, there’s no point in getting a new car when you won’t have a home. We need to get the lending stage you’ll want to make sure that you get the lowest interest rate, the best terms, and little help along the way.

Shop around and know how much you need before you go to a lender

Before you even think about taking out a home equity loan on your home, you’re going to want to go to different car lots and shop online, looking around to find the best prices. Understanding which car will be best for your purposes, what the bluebook value for it is both used and new and any other pertinent information will help you make sure you get the lowest price and the best mortgage. You don’t want to get a mortgage unless you know how much you need.

The lower the interest rate, the better

Once you know what car you want to buy, you’ll want to look at different quotes for second mortgages. You’ll want to get the lowest interest rate possible – if you’re quoted anything above 7% you’re probably paying much too much. If you have bad credit, you’re going to see double digit interest rates, maybe in the 20% range. If you’re going to see higher rates you’re going to want to make sure that you start working on your credit – that way when it does come time to take out a home equity loan or a second mortgage you’ll be able to get the most out of it and a better interest rate.

Improve your credit rating with borrowing

If you have a lower credit rating, getting a car loan instead of getting a second mortgage may actually be a smarter way to go. This is one of those situations where you may be better off talking to the bank first to see what they think is best. But that won’t be your only choice – you can also talk to a mortgage professional like a mortgage broker – they’ll be able to help you figure out how much you could save.

Work with the Canada mortgage broker to save

If you do opt to work with a mortgage broker, you’ll want to make sure they’re reputable and experienced. You don’t want to end up with someone so green that they don’t know what they’re doing – spend a little extra to make sure you’re getting the one that’s right for you. They’ll be able to help you figure out all your options and keep you from making any bad decisions.

Erin Thompson is a financial blogger for Homebase Mortgages.  At HBM, she provides home mortgages, mortgages for the self-employed, home equity loans and lines of credit, debt consolidation, private mortgage and second mortgage lending. You can visit their website at http://www.homebasemortgages.ca/