If you find yourself struggling to make your loan repayments because your debts are starting to pile up, a debt consolidation can help you manage your debts more easily over time.
This is a type of loan where you borrow money secured against your home to pay off the wide range of debts you currently have. So if you have credit card debt, personal loans, car loans, and a home loan, all of these debts will be consolidated into one, relatively-low-rate home loan repayment.
Rolling your debts into a single repayment has its benefits, here are some of them:
It helps you manage and organise all of your debts by bringing all of your loans together into one single monthly payment
Debt consolidation may have a lower interest rate because debts are all charged at a home loan interest rate.
It may improve your credit rating if implemented correctly.
As an example, imagine you have two credit cards with different limits and interest rates. Plus, you have a car loan and a home loan you’re paying off. With four monthly financial obligations, this may be overwhelming and difficult to manage your cash flow.
One way to solve this problem is by refinancing your home loan to combine your existing loan amounts with your new mortgage. This process can make your loan repayments more affordable. However, it’s important to take note of the refinancing fees it will cost you.
You will also need to supply necessary documents to your new lender. So it’s best to contact your new mortgage provider about the associated fees and the needed paperwork when you refinance with them.
At loans.com.au, we charge no ongoing, monthly, or annual fees so you can focus on paying down your debts instead of fees.
Repaying more than one loan is not uncommon, but if you find yourself struggling to repay all of your debts, then debt consolidation is worth considering.
Some of the main benefits of consolidating your debt include:
Switching to a potentially lower interest rate
Easier monthly repayment to manage
A clear understanding of when you'll be debt-free
While there are benefits to consolidating debt, it's important you take into account any potential costs of refinancing.
You may need to pay for discharge fees for breaking from your current home loan, as well as government fees. There will also be upfront charges when refinancing. These can range from application fees to legal fees, depending on your new lender.
When deciding whether to refinance your debt it's important to weigh the benefits against the costs to ensure it makes sense for your financial circumstance.
When you're looking to refinance, it's important to choose the right loan type to consolidate your debts into. For example, a low-interest home loan may be attractive, but a longer loan term could make repayments more affordable. Compare home loans for different fees, rates, and features to ensure you get the best fit.
It's important you have a good understanding of your current financial situation to make the most of refinancing. Take into account both your existing debts including the loan amounts, different interest rates and repayments, as well as the cost of switching your loan over to make sure the process will help you manage your debt more easily.
The biggest downside of consolidating your debt into your home loan is that your debt is spread over a longer loan term. Home loan rates are generally lower than credit cards or personal loans which makes your regular repayments more affordable when consolidated. However, because home loans have an average repayment period of 20-30 years, you'll pay more interest over time.
Thinking of refinancing your home loan? Talk to one of our friendly lending specialists today or use our refinancing calculator to estimate your potential savings.