Originally posted by SPA_S2000:
If you take $50K out of your house and apply it toward a car, unless the car appreciates, your overall worth deteriorates. Since almost all cars depreciate, I think what people are saying, but not saying, is that your overall worth is pretty much guaranteed to decrease. Generally, I would say that your equity in a home would increase (excluding paying off of principal) if you left it where it was. Thus, your trading off something that should make you money, for something that should not.
This is not unlike what would happen if there is a housing market crash, and your home depreciates. You and the bank dont share the liability, its all yours. Once your home becomes worth less than what they have lent you, what do you think happens (they could call it if they wanted - or you could just hand them the house)? It is exactly the same as buying stocks on margin. The stock goes down, its the prinipal that suffers and once the value hits the margined amount, you either pay up some dough or they sell your stocks.
Being able to write off the interest (I know nothing about this, I am a Canadian) is attractive, but if removing equity from your home to buy a car places the value of your mortgage(s) and the market value of your house close together, I would be very cautious. I would suggest against putting ones well being at stake for any car that you cannot live in
Sorry, but unless I am misunderstanding something here, I think you're completely mistaken.
Taking the last part first, it should go without saying that, if buying a $50K car with equity from your house puts your house at risk that is a BAD decision and you can't afford the car.
However, assuming your equity and your ability to pay back the loan are both fine, "unless the car appreciates, your overall worth deteriorates" ???
Huh ???
This statement is true (maybe) regardless of
where you get the money. I say "maybe" because it is possible for your house to appreciate more than the car depreciates, but in either case, it has no bearing as to
where you get the loan.
The car is a "depreciating asset". The home is (usually) an "appreciating asset". Where the money to buy the car comes from is
irrelevant to your overall "net worth".
"Thus, your trading off something that should make you money, for something that should not."
Not true' It
would be true if you were
selling your home to buy the car, but not by taking a 2nd mortagage, or "equity" loan against the house.
And actually, while I never really thought about it (probably because I don't own a house), you
can (usually) deduct the interest on an "equity" loan, but
only if the money is used to actually
improve the home, NOT to buy something else.
I'm no tax expert, but I believe the IRS would
disallow the deduction of the equity loan interest in this case, assuming of course, they ever audited the return, and, even then, if you told them some bull about how you improved the house they'd probably just let it go. And, it'd be almost impossible to be audited on this item alone. Also keep in mind, the basic rule of thumb is to "deduct" whenever possible and then let the IRS tell you you can't (which almost never happens).
[This message has been edited by NSX-GUY (edited 29 October 2002).]
[This message has been edited by NSX-GUY (edited 29 October 2002).]
