A mortgage is a type of loan that’s used to finance a house. Many people choose to apply for a mortgage because they don’t have the means to get a home independently, as the payment term for mortgages in Australia is typically 30 years.
Thirty years is such a long time, and that simply means that you’ll have to work for your mortgage payments until you can repay the mortgage in full. There’s nothing wrong with paying within the term, but don’t you think it’s best to pay for the mortgage faster so you’ll have fewer worries later on?
For this reason, consolidating your debt can help. How can it help in paying your mortgage faster? We’re here to tell you everything that you need to know. Read on below to learn more.
A Brief on Debt Consolidation
Debt consolidation is the process of taking your existing debts and combining them into a single loan, preferably with a lower interest rate. Consolidating your debts can give you a better idea of how much you owe and save you money.
Many people choose mortgages as a consolidation option because it offers a lower interest rate most of the time. However, this also puts your home at risk if you can’t make your payments.
Debt consolidation offers other options, such as adding your debts to an existing or new personal loan or credit card balance transfer.
Benefits of Debt Consolidation
- Depending on how much you owe, you can save a massive sum of money if you consolidate your loan with lower interest rates.
- Only one monthly payment is needed since everything is rolled into one debt.
- Budgeting is made more accessible because the lender will give you a single statement that includes everything.
What to Consider When Consolidating Debts
#1: Be Updated Regarding Current Debts
All debts must be taken into account if you intend to consolidate your debts. Ask yourself the following questions to help you get up to speed on your current obligations:
- How much do you currently owe on each debt?
- How much are the interest rates on each debt?
- How long is the payment term?
- Are there any extra fees or charges because of multiple debts?
#2: Know the Best Way to Consolidate
The best way to consolidate your debts depends entirely on the circumstances. If you roll all your debts into your mortgage, it reduces short-term debt for the following reasons:
- Most credit cards have higher interest rates.
- Most personal loans have higher interest rates.
- Any money that’s in a transaction or savings account is likely to have lower interest rates.
Conversely, you should also remember the following if you’re consolidating your debt into your home loan:
- Your home loan balance will increase since you’ll add existing debts to it.
- Any equity gained from your property will then decrease.
- Depending on the amount added to your home loan, you might need to pay the lender’s mortgage insurance.
Other Important Things to Remember
- Make sure that your lender is licensed by the Australian Securities and Investments Commission (ASIC). You should also make sure that interest rates and other fees are lower than what you’re currently paying for.
- Lenders may deny your request for debt consolidation if there are poor conduct on your credit report. These conduct let them know if you’ve been paying your bills on time or not.
- You can get higher interest rates over time if your loan term gets extended by not paying for the principal regularly.
Debt consolidation is only effective if you make your repayments on time. You should also avoid taking on more debts since you’re already paying a considerable amount because of the consolidation.
Wealthy You provides debt relief programs in Sydney. We understand that navigating your finances takes a lot of work, especially for people who lack the knowledge. We’re here to help because we believe that everyone needs to have financial security. Contact us today for a consultation!