How to Ease Financial Pressure by Consolidating Your Home Loan
- Written by Isabelle de Braux
With many people around the country doing it tough right now, this week we’ll look at a way you can take some pressure off your monthly finances through debt consolidation.
Here’s a quick experiment.
Go pick up three balls and try to juggle them. Most people, besides those who ran away to join a circus, will likely drop at least one of them within a few tosses.
Now put two of the balls aside and throw the remaining ball up and down (with one or both hands).
Much easier to manage, right?
Well, it’s not too dissimilar to the concept of debt consolidation.
If you have more than one loan – be that a credit card, car loan and/or a personal loan – you can help reduce the stress of juggling multiple debts, payment dates and interest rates by rolling them into one easy-to-manage loan.
There are other benefits, too
One common debt consolidation method is to take out a new personal loan and use the funds to pay off your other existing debts.
Now, if the interest rate on the new personal loan is lower than the rate on your existing debts (for example, a credit card with a 17.99% interest rate) this can help you pay less interest each month – not to mention avoid the nasty late payment fees that come with those kinds of cards.
And by rolling all your debts into one, you can get a clearer timeline of when you can be debt-free.
Debt consolidation can also make it easier for you to manage your household budget, as you only need to factor in repayments for one debt per month instead of many.
Refinancing your home loan for debt consolidation
Another method people use for debt consolidation is rolling it into a refinanced home loan, because mortgages offer comparatively low-interest rates.
So if you’re really struggling with multiple debts right now – such as a car loan or a number of credit cards – consolidating your debts into your home loan will, in most cases, reduce your overall monthly repayments.
However, here’s a big word of warning.
While this option can reduce your monthly repayments now, debt consolidation through your mortgage can turn a short-term debt (like a personal loan) into a much longer-term debt.
As such, unless you aim to make a lot of extra repayments as soon as possible, you could end up paying significantly more interest than you would have otherwise.
One way to address this issue is to create a loan split for the debt consolidation, giving you the ability to pay off all the short term debts within a few years, rather than, for example, over a 25-year home loan period.
So if you’re in need of breathing space now, debt consolidation is an option to consider – especially with mortgage rates so low at present due to the RBA’s official cash rate being at record low levels.
Contact your service providers
If you’d like to explore your debt consolidation or refinancing options, then get in touch with your loan providers to see if they can take some financial pressure off your shoulders.
It’s also worth noting that lenders are providing mortgage holders impacted by COVID with a range of hardship support measures, including loan deferrals on a month-by-month basis.
Also check out our home loans page to see how we can connect you with a mortgage that works for you.
