All You Need to Know About
Refinancing for Debt Consolidation

So, What is Debt Consolidation Anyway?

Simply put, debt consolidation enables you to take some or all of your outstanding loans and roll them into one. Instead of making multiple repayments at regular intervals, you’ll potentially be able to make one, easy repayment.

Typically, the debts you want consolidated will be repackaged into your home loan. For example, you may have a car loan, credit card debt, an overdraft and personal loan debt – all loans that are personal and not for business purposes. These loans could all be consolidated into your mortgage, not only simplifying your repayments but potentially also saving you money in the long run.

So, how exactly does it work, and is it a good option for your circumstances? Let’s take a look at some of the factors you need to consider.

What are the advantages of debt consolidation?

Convenience is one of the major benefits that make most people choose mortgage refinancing. Depending on the loan you choose and the options available to you, you could end up with one interest rate and one statement. No matter whether your mortgage is currently paid weekly, fortnightly, or monthly, you will end up with adjusted repayments, and potentially less debts. This certainly makes it easier to keep track of everything.

The total amount of interest you have to pay will often be reduced too. Debts are generally consolidated to take advantage of lower mortgage rates compared to higher interest and charges on credit cards, personal loans, and so on. The savings can stack up, especially in the short term, which is important if you’re seeking relief from high total monthly repayments.

At the same time, it’s important to keep in mind the repayment timeline you are taking on. In some cases, the consolidated debt may be paid off in a short timeframe within your overall mortgage, while in others, it may be spread out along the duration of the total loan. The first instance is generally better as it helps to minimise your total interest payments.

Mortgage providers often have promotions to entice customers over to them. By refinancing, you might get a sweet deal or a better offer than what you have with your existing loan structure. It’s worth checking whether current promotions and special deals might end up saving you money. You can read more about the benefits of refinancing here.

Is Debt Consolidation Right for You?

You shouldn’t consider debt consolidation to be an easy fix for your ongoing financial situation.

It’s a good idea to carefully consider all fees, charges and the regular repayment schedule when deciding whether it’s the right move for you. If you’re experiencing financial hardship, there are other options to look into before choosing to go down the path of refinancing.

When everything is taken into account, it may not be worthwhile to enter into a consolidated loan agreement. You should aim to get multiple quotes and talk to your financial advisor as well as your loan provider before committing. Professional financial advice is advisable as well as legal advice, should you need it.

What Are the Drawbacks of Refinancing?

Be mindful when considering changing your loans. There may be exit fees as well as other fees and charges that apply when you consolidate. Aspects of your home loan like redraw facilities may be changed under the new structure too, so make sure to get professional advice before you make a decision.

Sometimes a refinance is seen as a way out of spending problems or a way of maintaining a lifestyle that has grown beyond your means. If that applies to you, a better approach might be to sell assets and reduce debt, and to rein in spending before considering the benefits of debt consolidation.

Another big factor to consider is your current home equity, which may actually decrease once you have consolidated personal debt into the mortgage.

What Steps Should I Take Next?

Refinancing can be a big financial decision, and you should carefully look at your current circumstances before making any major changes.

Firstly, consider whether you are undergoing financial hardship, possibly combined with being behind on payments, or facing repossession or legal action. If any of those apply, seek appropriate financial and/or legal advice. On the other hand, if you have determined that it will simply be advantageous to look into consolidation, you may be ready talk to a mortgage broker.

Second, start preparing and putting together all of your financial information. Make sure you’re aware of your credit rating and history, as refinancing will be subject to the same checks and approval process as your initial loans. With a bird’s eye view of your financial and credit situation, you can then consider your options.

At Loan Monster, we can take a look at a wide range of lending options to find a solution that best suits your needs. Get in contact with us today to find out more.

The information contained in this website should not be taken as constituting personal advice. We recommend that you seek professional assistance before acting upon any information provided or linked on this web site.