Do you find yourself reeling under a mountain of debt that you are finding hard to manage? If so, it could be the right time to revisit your home loan.
Currently, some very attractive home loan deals are available in the market from credit unions and smaller banks that are competing hard to attract new customers. This period of low-interest rates is a great opportunity for anyone who is looking to refinance, especially as the interest rates are forecasted to rise in the later part of the year.
Refinancing your home loan for debt consolidation
By consolidating your debts into your home loan, you can potentially save hundreds of dollars each month, thanks to the low home loan interest rates, which can help you get rid of your debts faster.
However, refinancing involves certain costs, and you need to know what you want to get out of your new home loan before ditching your current one, such as, whether you want to reduce your monthly repayments or want to pay off your debts faster?
By using the equity in your home, you can refinance your home loan to pay out higher interest rate debts by consolidating them into your home loan. By using this strategy, not only do you save money but also save yourself the hassle of making multiple repayments each month. The money that you save can be used to meet other financial commitments or pumped into your home loan to get rid of it faster.
How to refinance your home loan?
If you think you are having trouble managing your debts, it could be worth turning to your home for help! Yes, you can use your home loan to consolidate your debts – such as credit card debt and personal loans – and start your journey to financial freedom by paying off a single loan at a lower rate of interest.
“However, to refinance your home loan, you must have some equity in your house, and a good credit score definitely helps,” says Richard, a mortgage broker.
“Before approving your application to refinance, a lender would look at your credit score, your repayment history, your financial commitments, total debts and income in addition to the market value of your home. Most lenders would allow you to expand your borrowings to 80 percent of the current value of your home. By paying lenders mortgage insurance, it may be possible to borrow up to 90 percent with some lenders. To get an idea of the amount you can borrow, you can get a professional home appraisal done or find out about comparable sales in the neighbourhood,” he adds.
At HashChing, we have several refinancing home loan deals from various lenders, credit unions and banks, including the big four, at broker pre-negotiated rates that could be almost one percent lower than lender advertised rates available on other websites. You can compare these home loan deals online or speak to a broker, for free, to understand your options better.
“Home borrowers must check the comparison rate of a home loan to get a real idea of what the loan would cost them after factoring in the fees in addition to the interest rate. Besides, they should opt for features such as an offset account and the ability to make additional repayments at any time, to ensure financial flexibility and boost their savings,” advises Richard.
Here are some key points to consider before refinancing your home loan:
Check the costs – Ensure that the interest rate on your new home loan, including the fees and charges, is lower than what you are paying on all the loans you are consolidating. Remember that some lenders charge fees for closing a loan before its term, especially if you have a fixed-rate mortgage. Besides, you need to pay stamp duty and other charges for a new home loan, which adds up to the cost.
Review the loan term – Debt consolidation is only a financial strategy to tide over troubled times. Bear in mind that by paying your short-term debts over a longer term, even at a lower interest rate, you might end up paying much more interest and fees in the long run. Thus, you must focus on repaying the extra debt as soon as possible.
Read the fine print – Ensure you are not simply promised a lower rate home loan without reviewing any associated fees and costs that could make your situation worse in the future. Thus, it is very important to do a background check on your lender and ensure you are dealing with a reputable broker. Read the fine print of your home loan very carefully before signing anything to ensure you understand the loan product you are selecting.
Ask for a split – You can speak to your lender to have your consolidated debt ‘split’ from your home loan. This way, while you’d be paying the same interest rate on your other debts as your home loan, the separate account will remind you that the debt is still there, and you can focus on paying it off quickly to wriggle out of your financial woes sooner.
If you think consolidating your debts with your home loan could help you with your financial situation, you may speak to verified mortgage brokers on the HashChing platform who will answer your queries online in a transparent manner. Especially with the tax time lurking around the corner, it could be a good idea to revisit your home loan now and start enjoying the potential savings your new home loan could afford, in the current financial year.
By Vidhu Bajaj,
HashChing Content Writer