Keeping house and car loans separate?

[wylie]

Our son is buying a house as his PPOR, settling in two weeks. We are settling for him using a family trust loan. He will make payments to the family trust until he finishes his renovations, by which time he will have a full time job and will refinance through a bank to repay the family loan. This should happen within three months, and hopefully a bank will do a full valuation which will reflect the work he has done. He is spending probably $30K replacing asbestos with plaster, new kitchen, new bathroom. He has a loan for a car as well and has been making payments to that loan.

He has asked me if he can roll both loans in together, but I think it is best if he keeps the "house and renovations" loan completely separate from the car loan.

He plans on living there long term, but it is possible that in a few years, he may be sent in his job to a different city, and would rent out the house whilst he is away. This may never happen, but if it does, is he better to keep everything he spends on his house separate to the car loan?

 

[Terry_w]

Yes keep them separate. He may be able to deduct the interest on the house loan down the track.

 

[Corey Batt]

Definitely keep them separate. Potential future deductibility could get messy if he rents the property out down the track.

 

[pinkboy]

Besides the obvious above there is also the financial cost.

Car loan for 5 years @ say 13% is still way less than the same amount @ 5% over 25 years.

pinkboy

 

[wylie]

Thanks for the answers. This son is getting a little concerned as the reno costs add up and asked if he should combine the two. I suggested he keep them separate and think about setting aside $2K immediately and dump it into his car loan to more than cover the interest for the first twelve months so he can concentrate on the house loan and the costs to set himself up.