Skip to content
  • Home
  • Services
    • Guarantor Loans
    • Debt Consolidation
    • Home Loan Redraw and Cash Out
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
Menu
  • Home
  • Services
    • Guarantor Loans
    • Debt Consolidation
    • Home Loan Redraw and Cash Out
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
the mortgage agency logo
  • About
  • Resources
    • Blog
    • Podcast
  • Contact
Menu
  • About
  • Resources
    • Blog
    • Podcast
  • Contact
the mortgage agency logo
  • About
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
  • Contact
  • Services
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Resources
    • Blog
    • Podcast
Menu
  • About
  • Calculators
    • Borrowing Power Calculator
    • Extra Repayment Calculator
    • Home Loan Offset Calculator
    • How Long To Repay Calculator
    • Income Annualisation Calculator
    • Income Tax Calculator
    • Interest-Only Mortgage Calculator
    • Loan Repayment Calculator
    • Lump Sum Repayment Calculator
    • Mortgage Switching Calculator
    • Split Loan Calculator
    • Stamp Duty Calculator
  • Contact
  • Services
    • Home Loan Refinancing
    • LMI Waiver for Financial Professionals
    • LMI Waiver for Health and Medical Professionals
    • LMI Waiver for Legal Professionals
    • Mortgages for Doctors
  • Resources
    • Blog
    • Podcast
  • Book in your Free discovery session now!
Home Loan Tips
/
Home Loan Tips
/
July 28, 2021

How Refinance Home Loan Debt Consolidation Works

Tony Xia
refinance home loan debt consolidation

SHARE

If you’re feeling overwhelmed by multiple streams of debt and are desperate for relief, refinancing your home loan for debt consolidation might be a great option.

A debt consolidation home loan provides a short term solution to a multi-faceted problem – but you need to weigh up the long term consequences and decide whether it’ll work for you.

You should always consult with a mortgage broker before making big financial decisions such as debt consolidation. They’ll be able to provide you with guidance to best suit your current and future home loan situation.

If you are experiencing financial hardship, this guide will break down everything you need to know about a debt consolidation loan.

refinance home loan debt consolidation

Why Would You Want To Consolidate Your Debt?

People often have existing debts in various forms, such as a:

  • Credit card repayments 
  • Personal loans
  • Car loan debt


Each form of credit comes with its own interest rate and repayment amount. And, because they’re considered short-term loans, they are generally paid off far quicker than home loans. 

Because a home loan is a larger loan taken over a longer term, the interest rate is generally lower than personal loans, car loans and other existing debts. Therefore, debt consolidation refinancing under your home loan could assist with a reduction in your total monthly repayments.

So, the main reason why people are interested in a new debt consolidation loan is to increase their monthly cash flow by paying less off on their monthly repayments.

refinance home loan debt consolidation

How Does a Debt Consolidation Loan Work?

People choose to refinance their home loans for different reasons. Some do so to access the equity in their home or to consolidate debts.  

Using your home loan to consolidate debt entails refinancing your loan. Your chosen lender will consider all your avenues of existing debt and refinance the balance of your home loan to include that debt. 

You will ultimately receive a brand new loan that includes your home loan, as well as all your debts such as a personal loan and credit card debt. 

Example:

Adam took out a 25-year home loan for $350,000 at 4%. After five years, he had reduced it to $300,000. 

He additionally has a total of $15,000 in debt from multiple credit cards and is struggling to juggle all of the monthly repayments along with his home loan. 

Adam’s mortgage broker advised him to refinance his home loan to consolidate his debt. Because he has a great credit score and has never defaulted on any of his mortgage repayments, his bank allowed him to refinance his home loan to $315,000. 

His previous monthly mortgage repayment amounted to $1,848, and his credit cards were $211, $153 and $84 per month, respectively. So, in total, he was paying $2,296 towards his different loans.

Under his new loan, his monthly repayments are $1,927 – all housed under one loan. This means that he is effectively freeing $369 worth of cash flow for himself monthly.

What Are the Advantages of Refinancing To Consolidate Personal Loan and Other Debt?

The main advantage of refinancing your home loan as debt consolidation is that there’s instant cash flow relief. 

Typically, home loan interest rates are lower than a personal loan, car loan, and credit card interest rates. So, consolidating debt means all of those debts will now receive the same lower interest rate as the home loan.

Many people see consolidating debts as a way to keep all their eggs in one basket. Instead of keeping track of multiple debts, you know you only have one amount to pay every month as opposed to multiple loan repayments. 

This could also increase your credit score and your subsequent borrowing power, as it reduces the risk of missed payments. Having only one monthly repayment means that nothing can fall through the cracks. 

Having more cash every month affords people a chance to save money that they might not have had before. 

refinance home loan debt consolidation

Are There Any Disadvantages of Refinancing To Consolidate Debt?

There are indeed disadvantages of debt consolidation. This is why it’s so important to seek professional advice before making a big decision that could land you in great financial difficulty. 

The first thing to consider is the upfront costs of refinancing. If you’re already short on cash, be sure to take these into account.

While it might sound like a good idea to consolidate multiple loans with high-interest debts, because your loan term is exponentially longer, you may end up paying more money in the long run – even though your new loan is at a lower interest rate. 

So, you need to weigh up whether debt consolidation to decrease your monthly repayments in the short term is worth potentially paying more money in total in the long run. 

Which will be more financially beneficial to you and your personal circumstances?

It isn’t uncommon to think, “the more money I have, the happier I’ll be.” But, this becomes risky when you have existing debts, and then you start accumulating other debts again – it can lead to a disastrous downward spiral. 

Key Takeaways

Refinancing your home loan for debt consolidation can provide much needed financial relief. 

Putting your personal loan, car loan and credit card debt all in one place can save you money right away by:

  • lowering their interest, 
  • increasing their loan term, and 
  • decreasing your monthly minimum repayments.

 

But, there are negatives involved too. If you consolidate your debts through refinancing, the total interest you pay in the long term, even at a lower interest rate, may end up being far more than if you left your personal debt and credit card debt as is.

At the end of the day, you need to seriously consider whether you aim to save money now (through debt consolidation) or save money in the long run and continue to pay off your debt as soon as possible. 

While every person’s situation is personal and unique, at The Mortgage Agency, we have helped many clients weigh up the pros and cons of this decision. 

Ultimately, so long as you know your goals, our specialist mortgage brokers can recommend the best steps to reach them. Then, they will compile a process guide and help you through your journey.

Contact our expert brokers today to set up a consultation.

Disclaimer:

Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.

About Tony Xia

Having worked in the customer service and finance industry since 2011, our Director Tony Xia and his team’s highest priority is to cultivate a long-lasting relationship with clients based on trust and respect at The Mortgage Agency.

Related

who will give me a loan when no one else

Roadmap to Financial Assistance: Who Will Give Me a Loan When No One Else Will?

November 27, 2023
/
Home Loan Tips, Loan Tips
Tony Xia
two men shaking hands and a miniature house in between

Does a Low LVR Mortgage Mandate LMI?

November 15, 2023
/
Home Loan Tips
Tony Xia
man signing documents

What Does Conditional Approval Mean?

November 10, 2023
/
Home Loan Tips
Tony Xia

“Off-the-Plan” Meaning Explained

November 8, 2023
/
Property Investment Strategy
Tony Xia

How to Calculate Equity in Home (Step By Step)

November 8, 2023
/
Equity Loan, Home Loan Tips, Uncategorized
Tony Xia
tax on investment property

How To Master Tax on Investment Property Obligations

October 31, 2023
/
Investment Property Loan, Property Investment Strategy
Tony Xia
dpcument signing

Principal and Interest vs Interest-Only: Your Repayment Options

October 19, 2023
/
Loan Tips
Tony Xia
couple looking at documents

Home Loans for Self-Employed Individuals

October 18, 2023
/
Home Loans for Professionals
Tony Xia
woman holding credit cards in frustration

Bad Credit Loan: Solution for Urgent Financial Needs?

October 18, 2023
/
Loan Tips
Tony Xia
high rise condominium building with pool

What are Strata Fees? Here’s Everything You Need to Know

October 12, 2023
/
Uncategorized
Tony Xia
who will give me a loan when no one else

Roadmap to Financial Assistance: Who Will Give Me a Loan When No One Else Will?

November 27, 2023
/
Home Loan Tips, Loan Tips
Tony Xia
two men shaking hands and a miniature house in between

Does a Low LVR Mortgage Mandate LMI?

November 15, 2023
/
Home Loan Tips
Tony Xia
man signing documents

What Does Conditional Approval Mean?

November 10, 2023
/
Home Loan Tips
Tony Xia

“Off-the-Plan” Meaning Explained

November 8, 2023
/
Property Investment Strategy
Tony Xia

How to Calculate Equity in Home (Step By Step)

November 8, 2023
/
Equity Loan, Home Loan Tips, Uncategorized
Tony Xia
tax on investment property

How To Master Tax on Investment Property Obligations

October 31, 2023
/
Investment Property Loan, Property Investment Strategy
Tony Xia
Preferred partners
anz logo
adelaide logo
auswide-bank-logo
Bankwest Logo
bank australia logo
bank of sydney
bank-of-queensland logo
better choice logo
beyond bank logo
bmm logo
bluebay homeloans logo
bluestone logo
citibank logo
cba logo
emoney logo
equifax logo
Firstmac-Logo-2016-Copy
fms logo
galilee logo
Great Southern Bank Logo
heritage
Honey Insurance Logo
illion logo
ing logo
Heartland Finance logo
get capital logo
latitude logo
latrobe logo
Macquarie_Bank_Logo_MBVert_BLK
me bank logo
mezy mortgage logo
mkm logo
movbe bank logo
Orde financial logo
mystate bank logo
st george
paramount logo
pepper money logo
virgin logo
plenti logo
qudos bank logo
resimac logo
suncorp bank logo
thinktank logo
ubank-logo2
victorian mortgage group logo
westpac logo
wisr
WLTH logo

Speak to the mortgage agency today

Talk to us now
hte mortgage agency footer
  • Home
  • About
  • Calculators
  • Services
  • Locations
  • Blog
  • Podcast
  • Contact
Contact Us

Bella Vista Office

  • 217/14 Lexington Drive, Bella Vista, NSW, 2153
  • 0423 718 612

Parramatta Office

  • 19/103 George St, Parramatta NSW 2150
  • 1800 242 234

Penrith Office

  • 95b Station St, Penrith NSW 2750
  • 1800 146 759

Sydney Office

  • Seabridge House, Suite 120/377 Kent St, Sydney NSW 2000
  • 1800 146 759

Serving The Wider Sydney Area

  • Canterbury-Bankstown
  • Eastern Suburbs
  • Forest District
  • Greater Western Sydney
  • Hills District
  • Inner City
  • Inner West
  • Northern Beaches
  • Northern Sydney
  • St George
  • South-Western Sydney
  • Sutherland Shire
the mortgage agency logo
Tony Xia is A Credit Representative (477089) Of Mortgage Specialists Pty Ltd ACN 050 601 093 (Australian Credit Licence 387025)
Facebook-f Linkedin-in Instagram
Copyright @ 2023
  • Terms and Conditions
  • Privacy policy
  • Website Safe and Secure
  • Made With
  • By Digital Recipe