Debt Consolidation through Mortgage Refinance
If you are a home owner with some equity in your home, probably the most effective debt consolidation strategy would be to refinance your mortgage and include your other ‘more expensive’ unsecured debts into your mortgage.
Simply speaking, unsecured debts are generally far more expensive than the cost of your mortgage. That is even the case if your credit history is not too good and you are on a higher mortgage rate.
By consolidating your credit cards, unpaid defaults, personal loans, tax debt and any other unsecured loans into your mortgage, you could save thousands of dollars each year as well as improve your credit history.
Please note that most lenders have recently dropped the refinance LVRs they are prepared to consider. Therefore to qualify for debt consolidation through mortgage refinance you must have at least 20% equity left in your property even after the refinance and consolidation.
We frequently receive refinance requests from persons looking to consolidate their unsecured loans into a new mortgage. That is generally not possible as new home purchasers already borrow the maximum m possible for the purchase eof their property and it does not offer the additional security required for the purpose debt debt consolidation.
Debt consolidation using your home
As a home owner you have a distinct advantage when it come to debt consolidation. Irrespective of your credit history, if you have sufficient equity available in your property you should be able to benefit from refinancing your unsecured debts into your mortgage. Thereby you will be able to pay home loan interest rate on unsecured debts such as credit card balances and personal loans. Some of these unsecured debts may be costing you as much as 25% pa.
Unfortunately if you are not a home owner, this option is not available to you. If you have a clean credit history you may qualify for a personal loan with a bank or building society to consolidate your unsecured loans into one. If you do not have a clean credit history – unsecured consolidation loans are simply not available. Your options become limited to debt negotiation and possible a part 9 agreement (depending on seriousness of your situation).