Minimum payments, due dates, penalties, debt collectors – dealing with multiple debts can be complicated and overwhelming. You may have a mortgage, a car loan, credit cards to pay off, or other personal loans. It’s easy to feel as if you’ll always be struggling to pay your loans and you’ll never be debt-free.
But there are ways to manage your debt and feel in control of your finances again. If you have a mortgage, consolidating your debts into your home loan is one option. Essentially, you increase your home loan and fold your other debts into the mortgage.
Although it’s not for everyone, consolidating your debts into your mortgage lets you take advantage of a lower interest rate and simplify your debts at the same time. Rather than dealing with multiple lenders and repayment dates, you’ll have a single loan, a single payment, and one lender.
Rearranging your debt
Shifting other debts into your home loan can be done in a couple of different ways. You can ask your bank for a top-up loan and then use the money to pay off your debts, making them part of the mortgage. Or you can refinance completely, which may let you access the equity in your home and give you more money to work with.
The best option for you depends on how much you owe, the terms of your current mortgage, and whether you’ve had time to build equity in your property. It also depends on whether your current lender will come to the party – many lenders will be reluctant to increase your mortgage if they don’t think you can make repayments.
Simple, streamlined debt
Having all your debt in one place makes it much easier to manage. Rather than having to remember multiple repayment dates, along with multiple logins and account numbers, you’ll simply continue to pay your mortgage. That means you’re less likely to miss a payment or a due date.
Because you’ll have paid off your other debts completely, you don’t have to worry about damaging your credit rating with late or missing payments. You’ll no longer need to pay penalties or late fees, and no debt collectors will be chasing you for payment.
You’ll also benefit from the lower interest rate that comes with a mortgage. This rate is usually the lowest available, while other forms of debt – like credit cards and car loans – can have very high-interest rates.
Risks and considerations
Of course, as with any major financial decision, it’s important to think carefully before you consolidate your debt. You may be charged extra fees or penalties for adding to your mortgage or refinancing with another lender, which could be more than any interest you might save.
It’s also important to calculate your new, increased mortgage payments and make absolutely sure you can cover them consistently. Once you’ve consolidated other debts into your home loan, there’s no going back. Your home will now be held as security for all your debt, which could have serious consequences if you’re not able to keep making mortgage payments. Having your car repossessed because you defaulted on your car loan isn’t ideal, but losing your home is clearly far more serious.
Getting started
Consolidating debts and altering your home loan can be complicated, so it’s a good idea to get some expert advice before you jump in. A financial advisor or broker will be able to look at your overall financial situation and let you know whether folding debt into your home loan is the right choice. They’ll be able to help calculate fees, penalties, and the interest you’ll save if you make the switch. If your bank is reluctant to increase your loan amount, a broker will also be able to find a range of loan options from other lenders.
Although it might be complicated, and there are some risks, many people find that consolidating debt into their home loan makes life easier in lots of ways. Not only are you likely to save money in interest, but you’ll be saving yourself the stress and time involved in dealing with multiple lenders.
Want to find out more about debt consolidation? Talk to a Global Finance advisor now.