Refinancing and debt consolidation are two financial strategies worth considering. You can also do both with a debt consolidation home loan.
There are many valid reasons for refinancing a home loan. For example, you might want to:
- Get a lower interest rate
- Convert to a fixed, variable or split rate.
- Change the term of your mortgage.
- Use the equity you have in your home to finance another large purchase.
- Consolidate your debts.
A debt consolidation home loan involves refinancing all your smaller debts into home loan. For example, any personal loan and credit card debt that you might have. Home loan interest rates are much cheaper than the interest rates on personal loan and credit cards.
Consolidating your debts makes your overall repayments easier to manage, because there is one single repayment schedule rather than multiple ones. It makes good financial sense in certain situations.
Do you need to consolidate your debts?
Do you find you’re often hitting your credit card limit and only making the minimum repayment each month? Or worse still, do you do this on multiple credit cards? Either way, you’ll be paying more interest than you should be. And that can really add up over time. It’s the same with personal loans. for depreciating assets like cars. Those sorts of investments won’t increase your future wealth. On the other hand, loans for long-term growth assets like property help you to secure your financial future.
When is a debt consolidation home loan effective?
For a debt consolidation home loan to be an effective strategy, you need to ensure that:
- Your home loan interest rate is lower than the interest rates on the other debts that you want to consolidate.
- You don’t increase the overall term of your loan. In other words, you should adjust your home loan repayments to cover the consolidated debt.
- You’re committed to not getting into any further high-interest debt. Break the cycle of bad credit card habits.
Be aware though that there are likely to be costs associated with refinancing, like exit fees from your existing loan and application fees for your refinanced loan.
If you’re considering refinancing and consolidating your debt, Maxima Mortgage can help you. We’re committed to helping our clients to get the best home loan for their needs and to securing the financial future.
To find out how we can help you, contact us for a free, no-obligation initial consultation.