Finance News

Using Your Mortgage to Consolidate Debt

Using Your Mortgage to Consolidate Debt
Author: Courtney Thomas

With increases in the cost of living, some mortgage holders may find it difficult to manage their finances or become overwhelmed with their financial commitments.

Many Australians have credits cards and personal or motor vehicle loans on top of their mortgages. Interest rates for these loans may much higher than your home loan rate and can chew up your extra income and take longer to pay off.

If you’re in this situation, one option that’s available to you is consolidating your debt. This means that you increase your home loan to pay off all your other debts, giving yourself some much-needed breathing room.

If you consolidate your debt you can focus on one repayment deadline instead of many. This can not only allow you to save on interest, it can also help make managing your finances much easier.

Before you consider refinancing to consolidate, you should consider whether to stay with your current lender or to apply with another. It’s a great opportunity to review your loan and research what other options are available. Are there home loans with more competitive interest rates, or with features that can help you pay off your loan sooner? Look for features like offset accounts, the ability to pay extra and free redraw.

If you are refinancing or topping up your loan, lenders will want to see around three months’ worth of statements on your debts. It is therefore crucial that you continue to meet your repayments and not do anything that might adversely affect your credit report.

To consolidate your loan you will need to have equity. Most lenders will increase your loan to 80% of the value of the property without mortgage insurance. This means that the current value of your property is pivotal in determining if consolidating your debt is possible at all. By speaking to a broker you can arrange a valuation report for your home.

After consolidating, your focus should be on fast-tracking your repayments to pay the extra debt off. Many borrowers will slip into old habits and just pay the minimum. Spreading your credit card bill or personal loan over a 25 or 30-year loan term will incur thousands of extra dollars in interest payments.

Speak to your broker about having the consolidated debt ‘split’ from your home loan or put into a separate account. That way it will still be under the same interest rate but will have its own statements and repayments. This way, you won’t forget it’s there and you can focus on paying it off quickly.

Most lenders will allow you to divide your loan up and also have features like offset accounts and free redraw. If you wish keep your debt separate from your home loan in order to pay it off sooner, you can.

If you’re interested in refinancing to consolidate your debt, get in touch and we’ll be happy to help.

General Advice Disclosure: This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.

ASCK Pty Ltd (ACN 105 450 566), trading as AMEGA Financial Solutions is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited Australian Financial Services Licensee and Australian Credit Licensee 232 706. General advice warning: This website contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

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