Can You Roll a Car Loan Into a Home Loan?

When you "roll" a debt into another debt, you are taking a consolidation loan. The new loan replaces both of the existing debts with a single debt, allowing you to make just one payment. You can consolidate many different types of loans, and it is even possible to consolidate a car loan and a home loan. To do so, you must consolidate the loans into a new debt.

Process

In order to consolidate an auto loan and a home loan, you will need one loan with a limit large enough to pay off both. Since your home is a bigger asset than your car, you will be able to get the new, large-limit loan using your house as collateral. You can approach your mortgage lender and ask to refinance your home loan. With this model, you can pull equity out of the home to pay off your car loan. In doing so, you would be consolidating the two debts by making the amount you owe on your current mortgage bigger. Another option is to take a new mortgage large enough to pay off your existing mortgage and your car loan; this new loan will be your consolidated loan.

Advantages

The main advantage of rolling a car loan into a home loan is the simpler payment plan: You will only have one bill each month. You may also reduce the length of time it takes to pay off your debts or reduce your total costs by consolidating. For example, if your home loan has a low rate and your car loan has a high rate, consolidating the car loan into the home loan will save you money in interest payments.

Risks

Your home is the collateral for your mortgage. Right now, it is not the collateral for your auto loan. If you were to default on your auto loan, you would not lose your home. However, once you consolidate the debts, there is no separation. If you cannot pay the new, larger payment, you will face default on your home loan, and this can lead to foreclosure. A second risk is the financial effect of consolidating your two debts; you will not always save money. For example, if your home loan rate will go up after the consolidation, even by a small amount, you may end up costing yourself money in the long run. Finally, consolidating a loan is, in the strictest definition, breaking a loan contract. Therefore, the original lender you are paying off early may report negative activity to your credit report, lowering your score.

Alternatives

If you would like to reduce your car loan debt but do not want to risk your home, consider other refinancing options. You can refinance the debt independently, consolidate it with other consumer debts or pay off the loan early. You may also consider a home equity loan, which is a type of secondary loan against your house, to pay off your car debt. In this case, your new loan would still be separate from your mortgage, but the home would be used as collateral on each. You can still lose your home if you default on a home equity loan, but the process is much less likely to result in foreclosure than default on a mortgage is.