Tax Break

• One of the primary reasons that people consider refinancing to purchase a car is that you are provided with a tax break. When you take out a traditional loan for a car, the interest that you pay is not tax-deductible. When you take out a mortgage loan, the Internal Revenue Service allows you to deduct the amount of interest you pay on the loan. This means that if you use your mortgage to pay for a car, the loan becomes tax-deductible.
  
  

Lower Payments

• By using this technique, you could also lower your total monthly payments. With a traditional car loan, you amortize the loan over five to seven years -- in most cases. With a traditional mortgage, the loan is amortized over the course of 30 years. By spreading out the loan throughout such a long period of time, you can significantly lower the payment for your car. Interest rates on mortgages are often lower than car loans which can help make the total of your mortgage and car payment lower as well.
  
  

Total Cost

• Even though this can lower your monthly payment, you have to consider the total costs involved. When you extend your loan from a five-year loan to a 30-year loan, you are adding a great deal of money in interest. The total amount that you are paying for the car goes up substantially. Even though you can save money on your taxes, you have to consider if this is worth the extra cost involved with the interest.
  
  

Using Equity

• To make this strategy work, you have to use the equity in your home. You have to have equity built up in your house and then refinance your existing mortgage. While you are free to do this, it may not always be in your best interests. By using up part of your equity on a car purchase, you may not have enough left over if you get into serious financial trouble in the future.