Consolidating Debt With A Home Loan – Here’s What You Need To Know
There are different debt consolidation methods, each with their advantages and possible disadvantages. The type of approach you choose will depend upon your circumstances.
Those with a home loan can refinance their home loan to consolidate debt and get a better deal. This method is especially convenient for those already making regular home loan repayments.
Moving debts into your home loan lets you take advantage of the lowest possible interest rate. Low interest rate and longer term provide for lower monthly repayments, while flexible features allow additional repayments so debts can be paid off quickly.
Debt consolidation vs paying multiple debts
You could then calculate what you would pay if you consolidated your debt into your home loan. Take a look at how you could be reducing your repayments by $1,201 per month.
Using the above example, you could be reducing your repayments by at least $1,201 each month by rolling your debts into your home loan. That would free up your cash flow for other purposes. If the monthly payment on the new loan is significantly less than what you’re currently paying, this may be an indication that a debt consolidation is a good option.
Depending on the home loan, you can also take advantage of flexible home loan features that will allow you to make additional repayments, or redraw funds in case of emergency.
The term of a home loan is much longer than other loans, typically 10-30 years. Although a longer term can reduce monthly repayments, paying off debt, according to the lender’s minimum repayment amount may cost you more in the long run.
Effectively consolidating debt with your home loan requires significant home equity and borrowers should also be sure they can keep up with the extra repayments as defaulting could put your house at risk.
Be aware that this approach turns your unsecured debt into secured debt, which means that if you don’t meet your loan repayments, then the bank could sell your home to recover their loan.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for information about the best options for you when it comes to your mortgage.