Refinancing your home loan to consolidate debt

Here’s everything you need to know about refinancing your home loan to consolidate your debts into your home loan.

How do you start your refinancing trip?

Before making an application to refinance, consider your current financial situation along with your current level of monthly repayments to establish if there is a benefit in you consolidating this debt. In other words will you save on monthly out goings and repayments by consolidating this debt.

 Step 1 Determine what you need and explore your options

You’ll need to list down your home loan requirements and compare your current deal with that other options available. Some of the options you need to consider are before applying for a debt consolidation loan are:

  • Competitive rate
  • Flexible features
  • minimum to no ongoing fees
  • Good client support and service

 Step 2 Work with your broker

It is important to work with an experienced Broker so that your requirements and objectives have been met.

 Step 3 Apply to refinance

The refinancing process is similar to when you applied for finance the first time around unless you ’re refinancing with the same bank – in which case, you won’t need to give as much paperwork.

If ever you fall into the following circumstances, you’ll need another assessment from your chosen lender to see if your finances fit the conditions of your target loan product

Step 4 Get finance approval

Once you have been conditionally approved your new lender will arrange to value your property. Generally, the first valuation is free, but the lender will frequently charge for further valuations.

After this, your lender will advise you in writing of your loan approval – this is generally called formal or unconditional approval. Your broker or lender will also instruct a solicitor to prepare the loan documents on their behalf.

 Step 5 Arrange Mortgage Documents

The loan documents will be transferred to your solicitor for review, and for you to sign..

Your new lender will arrange both agreements of your old loan with your former home loan provider and the establishment of your new loan.

What are the benefits of refinancing?

  1. Lower repayments and monthly fees

With a consolidation loan your monthly repayments will reduce – a sensible way to lighten up the burden if you ’re strapped for cash. Refinancing can extend the life of your mortgage in some circumstances.

  1. Make use of your home equity

Home equity is the difference between the current value of your home and what’s still remaining to be paid on your home loan.

Let’s say your property is worth $500,000 and you have a mortgage of $100,000 remaining on your loan. This means you have $400,000 of equity in your property.

What are some tips to avoid in refinancing?

  1. Assess your situation

Ask yourself, will consolidating your debts help get your finances on track? The total cost may leave you in a worse situation than your are currently in.

  1. Be cautious of dodgy credit providers.

Only deal with licensed mortgage brokers and credit providers.

  1. Maintain fiscal discipline to avoid incurring debt again.

Don’t go down the same track again always use debit cards and avoid credit cards or payday lenders.