Applying for Car Loan to Pay off 2nd Mortgage

[mans442]

Hello,

I currently want to pay off my 2nd mortgage ($37,000 @ 8.125%) within 4 years. I attempted to refinance it with a home equity loan, however my LTV is well above 80% (around 100%). No bank or credit union can touch it with a better rate.

However, I can get a car loan for 48 month term at 4-5.5% for up to $50,000. What if, I apply for a car loan, get the check, pay off my 2nd mortgage? I know the bank will need the car title to hold as collateral. I am sure this is sketchy, but what can the bank do to someone who does this? Will they still honor the terms? Or will I get sued? Again, just curious with no active intent.

Thanks
Jason

[elessar78]

Don't do it. Don't try it. It's called fraud.

Yes, the bank will hold the title from the dealership. They aren't stupid.

Federal sentencing guidelines for bank fraud is minimum about a year.

[disneysteve]

Aside from the fact that what you are proposing is illegal and not feasible, it wouldn't really accomplish all that much. Your home loan interest is tax deductible. Your car loan interest isn't. That means that the effective rate on the home loan is about 6.1%. If the car loan is 5% or 5.5%, you really wouldn't be saving that much (even if you could do it which you can't).

[siggy_freud]

They won't give you a blank check for a car loan. You'll have to supply them with a VIN so they have actual property and collateral for the loan. Remember, they own the property until you pay it off. No bank is going to give you a car loan without getting the title to the actual car.

Try again . . .

[mans442]

Thanks for the replies. Again, no intent to do so. I remember back in the late 90s or early 2000s there were a few internet companies focused on auto loans (Giggo.com) that would send out a "check" after an online application. I remember reading about some people taking the money and gambling it away at casinos. That company didn't last long

Jason

[JoeP]

Not to sound harsh, but you spent $37k you didn't have, and now you need to pay it back with interest. I'd stay away from tricks like this and focus on paying it off as soon as possible, making extra principal payments whenever you can.

[disneysteve]

Not to sound harsh, but you spent $37k you didn't have

OP is talking about mortgage debt. When we bought our house, we spent $114,000 we didn't have if you want to look at it that way.

[mans442]

Hi Joe,

Agreed. I needed to do an 80/15 split to buy a house in 2007 because I could only scrape up 5% for a down payment. At the time, the PMI would have been more expense. If only I had a Delorean with a Flux Capacitor option...

I have eliminated all of my unsecured debt since then (student loan, car payments, CCs)

I took DR's Financial Peace class a few years ago. The coursework stated that if the 2nd mortgage is more than 50% of your annual income, then you should treat it as Baby Step # 5 (pay off mortgage) rather than BS # 2 - debt snowball.

I need to pay it off within 5 years and would like to do it with a better interest rate. However, it doesn't look like it is a current possibility.

Jason

[JoeP]

OP is talking about mortgage debt. When we bought our house, we spent $114,000 we didn't have if you want to look at it that way.

We might be splitting hairs, but I consider that $37k to be voluntary debt similar to that of a credit card. So the first mortgage goes toward your house, and the second mortgage goes toward whatever you bought with that money (using your house's equity as collateral).

[Slug]

Yup, splitting hairs. The debt is the same regardless of how it is framed. With a rate like that, OP should definitely attack it.

OP, you could consider a Prosper or Lending Club loan. If you have great credit, you could get a lower interest rate though the payment will be larger since the term is shorter.