We had a question in our office from a client recently who was thinking of refinancing his mortgage. It was coming up for maturity and he was thinking of buying a used car.

Pro tip: the best time to refinance is at maturity. This allows us to shop around and/or negotiate with your existing mortgage lender to get the best rate and terms.

He was asking whether he would be better off buying a new car and putting a big down payment on it or buying a used car cheaper.

First, we almost never recommend buying a used car or new car with the proceeds of a mortgage refinance. Why? Because you will be amortizing that used car or new car over the next 25-30 years (likely). Not good. That becomes a very expensive used car AND it will be long gone probably 5-10 years in (if you’re lucky). So let’s get that out of the way.

Back to the question at hand – which is better? New or used car? The answer is simple: whichever one results in the lower monthly payment.

When deciding how much you can afford on a mortgage, the bank looks at how much money is coming into your home each month (through work or pension or rental income etc.) and compares it to how much money is going OUT each month. They will increase or decrease the amount you will qualify for until those ratios fall in line.

Of course, this is not the only factor to consider when deciding to buy new or used. You should obviously consider tax implications, reliability, maintenance, life span etc. But that’s a discussion for a another blog!

Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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Thanks for reading!