Are my calculations flawed? (Pay off mortgage, lease a car)

[Pulse]

Can anyone tell me if my calculations are fundamentally flawed for any reason?

Once our fixed term ends next year, we'll be putting some money into the mortgage. This will bring down what we owe to approximately £70,000, with a house worth approximately £130,000.

If I sold the car, I could put £12,000 more into the pot which, if we were to go ahead with a 7 year mortgage plan, would save us approximatelely £150 a month.

We're able to lease a car on a very good deal (partner works for Audi), and this £150 a month would almost entirely cover the cost of the lease per month, leaving about £25 per month to pay on the car. Compare that to my current car, which I estimate (hope) costs no more than £3000 per annum to run (ignoring fuel/insurance costs).

Seems to me like a no brainer, but I'm not sure if I'm calculating something wrong here or not. Can anyone help? (Or hopefully just confirm that what I'm saying is correct...)

[Simbu]

Something to bear in mind - what happens if your partner changes job? Does it affect the leasing plan?

[Pulse]

It does. If she changes job, the car has to go straight back; but that is very unlikely to happen for the next few years at least, and in that event, we could buy another car (though something cheaper to run).

[ATM]

Is this a repayment mortgage?

[Pulse]

Yep. Likely we'd just leave it on SVR for maximum overpayments over the next few years, as well.

[ATM]

Ok so this can complicate the maths. But yours is not necessarily incorrect.

You could pay off the 12k and keep the payment per month the same but reduce the term. This could save you much more money but does not leave anything for the car fund now. But could mean you are mortgage free much sooner and then car buying becomes a different proposition.

I'm assuming your initial explanation was to keep the term fixed but use the 12k to reduce your monthly payment. The 150 per month is based on your current interest rate. If the interest rate goes down then you are saving less but if it goes up then you are saving much more.

If interest rates do go up and you chose to reduce the term of you mortgage then you end up saving yourself even more because the final years of your mortgage would have been at the higher rates.

I've been discussing a similar thing with my brother as he wanted a 2nd opinion to his maths.

[Pulse]

I think it's unlikely interest rates will go down, so in the event they go up, we'll be 'saving' even more.

I know you'd save more by reducing the term, but in reality it's more a maths thing, for affording the car. We'll still be overpaying, so it's really a moot point.

[jeff m2]

Basically you are cashing in a depreciating asset and paying into an appreciating one. (hopefully appreciating, that is)

Then you are paying the depreciation on a new car. (A lease is calculated on the depreciation over the lease period plus int)

First bit good, second bit not so. Your current car has already taken it's major depreciation.

Leases are more suited to company cars that can deduct the whole payment. (I mean real company cars, not employee car plans) They have been "pushed" to enable people to get a car with a lower monthly payment. IMHO.

I'm not so sure over the long term this is way to go.

[CaptainSlow]

I'd say this is a good way to go, £150pm for a new car is great. If this is with Audi UK, it may be their employees rental scheme, is it new car every 6 months? If so be careful as damages cost aren't covered and can be quite high.

[Pulse]

It's not the Audi car scheme, but one provided as a benefit to Audi employees. It's a 12 month lease, and the car is bought back in by the dealership you work for (so in theory they shouldn't rip you off). We took our 7 month old A1 back (early) to them a couple of months ago, and they picked up no faults with it. Just handed the keys over, and that was it.

I'm glad my calculations were correct then, and I wasn't missing anything. Thanks all. We'll now need to sell the Z4 and go back into the scheme I guess!