Should I refinance to consolidate my debts?

Refinancing multiple debts into your home loan can help simplify your finances – especially if you’re juggling many loans, each with different repayments, fees and interest rates. Consolidating debts can be a good option if you want to get on top of your existing debts like credit cards, phone bills, personal loans and car loans.

One debt, one regular repayment

By consolidating your debts, you have the advantage of just one regular repayment – making it easier to budget and manage your finances. Having one loan reduces the amount of time spent keeping tabs on multiple loan accounts and managing repayments.

Depending on your personal circumstances, you might also think about switching to weekly or fortnightly repayments instead of monthly payments. This could help you to pay down your loan sooner and potentially save thousands of dollars in interest over the term of your home loan.

One home loan interest rate

When you look at the high interest rates on personal loans and credit cards, you can already see why consolidating your debts through refinancing may be an attractive option. The process of refinancing allows you to roll all your personal debts and liabilities into one loan account – subject to one interest rate, making your repayments a lot more manageable.

Less fees and charges

If you look closely at your credit card statements, you’ll probably find that you’re being charged pretty heavy annual fees. If you decide to refinance and consolidate your debts, you’ll have only one set of administrative fees, making it much easier to know where your money is going.

Cash flow boost

When you consolidate debts you can free up your monthly cash flow, because you have fewer bills to pay. This can be beneficial for you if you have trouble with cash flow each month. There are some home loan lenders that have no limit on the number of debts that can be consolidated.

Ready to consolidate your debts by refinancing?

Make sure it's the right option for you
Be clear about why you want to refinance. Ideally consolidating your debts means better management of your finances. But If you’re looking for an easy way out of credit card debt, you may want to re-think your spending habits.

Work out all the costs involved with your existing debts
To make sure refinancing is worthwhile, you'll want to understand all the costs involved with each existing loan. Write down your individual repayment amounts, loan interest rates and all the fees associated with your current debts.

Find out how much you can borrow
Once you’ve calculated the combined total of your loans, check you’ll actually be able to borrow the amount you need. To get you started, use our Borrowing Power Calculator to find out how much you could possibly borrow. If you need more help understanding your current borrowing power, contact your trusted Mortgage Broker.

Compare different home loans
If you decide to switch to a new home loan you need to make sure you’re really getting a better deal – because the idea is to save money and pay off your debts. Look for a combination of low interest rates and minimal fees. If offset accounts and redraw facilities are important to you, make sure they’re available with your new home loan.

Know the cost of refinancing
Your existing loans may charge exit fees if you pay them off early. There will also be fees associated with opening a new home loan. Ask your Mortgage Broker for a complete list of fees that you need to budget for and work out if the upfront cost will pay off in the long run.

Other factors to consider

When you transfer short-term debt, like personal loans and credit cards, into long-term debt like a home loan, you’re securing that debt against your home. And while your monthly repayments may go down, you’re paying them over a longer period of time – which may mean paying more in interest in the long run. It is important to compare all the costs of the new loan against the existing one to make sure that your new home loan repayments are more affordable.

Don’t be tempted to start building up your personal debt again – it’s a good idea to close the accounts once they are consolidated and paid off. Refinancing your home loan to consolidate debts is a major decision, and you will need to get the right advice about whether it’s a suitable strategy for your lifestyle and budget. Speak to your trusted Mortgage Broker who will be able to guide you through the whole process and help you make the right choice.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.