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Consolidate Debt by Refinancing Your Home Loan
Paying off a home loan, car loan and credit card separately can be overwhelming and expensive. If multiple debts are dragging you down, debt consolidation might be the answer.
Debt consolidation means bringing different loans together into a single loan. One way to do this is to refinance your home loan to encompass your other debt. This can be a popular choice for those trying to pay off personal loans, car loans or credit card debt on top of their home loan.
To help you decide if this is the right option for you, we’ve laid out the pros and cons of refinancing your home loan to consolidate debt.
What are the benefits of debt consolidation?
There are a number of potential benefits when it comes to consolidating debt into your home loan, with the most popular being that it may save you money.
- Save money. Your home loan interest rate will typically be much lower than the interest you’d pay on a credit card, car loan or personal loan. Switching to one single loan with a lower interest rate may reduce your repayments and mean you’re paying less in fees.
- Save effort. Instead of dealing with multiple lenders, you’ll only have to make repayments to one lender. That means less paperwork and potentially less time on the phone – which is appealing to almost everyone.
What do I need to watch out for?
While consolidating debt can be a good way to save money, there are a few potential pitfalls, including:
- Higher repayments. It’s essential to ensure that once your debts are consolidated you can afford the new repayments.
- Fees and charges. There may be exit fees for the existing loans and application fees for the new loan. Remember to factor in these costs when calculating the potential savings.
- Accruing more debt. If you’re consolidating debt to pay off a credit card, don’t forget to cancel the card so you don’t continue to accrue debt while you’re paying off the existing balance.
- Extending timeframes. When it comes to refinancing home loans, it’s important to think ahead. Sometimes consolidating debt into your home loan inadvertently leads to you taking longer to pay off the loan.
The best place to start is with a qualified mortgage broker who will be able to help you tailor your loan to suit your lifestyle and budget.
If you’re interested in the savings you might make through consolidating your debt, a qualified mortgage broker is well placed to help you to explore your options. Call 13 19 20 to speak to an iSelect broker today or get started by completing our online needs analysis.