Consolidating debt into your home loan

Are you dealing with debt? You might be managing multiple payments or you may just have an outstanding credit card debt hanging over your head. Either way, chances are you've lost sleep over it. You could consolidate your debt into your home loan to simplify the process by making one regular payment and potentially save on rates and fees.

Smaller debts can be incorporated into your home loan, for example personal loans, credit and store cards. After consolidating, you can restructure your repayments to get debt-free sooner by raising your payments slightly or make them more frequently.

Interest rates on small debts are usually set quite high, which means that consolidating them into your loan should save you money in the long run. For example, if you purchased a car with a personal loan then you might be paying an interest rate as high as 12% p.a.. However, after consolidating, you could tie it to a much lower interest rate, even as low as 5% p.a. in the current environment.

Things to remember

If you’re thinking about consolidating your debt into your home loan, you might want to speak to a mortgage broker first. A mortgage broker will:

• Assess your needs and financial position and recommend competitive loan options

• Take the time to explain the full process, from application to settlement

• Do most of the leg work, acting as an intermediary and negotiating with the lender

• Complete mountains of paperwork, leaving you to simply review and add your signature

• Liaise with key parties, including solicitors and real estate agents (and you!) to ensure a smooth settlement

• Perform ongoing reviews for you after settlement to make sure you are always on a competitive loan.

There can be costs involved in consolidating your debts, and you will need to see if this option is suitable for your financial situation.

Also know that, any lender who you consolidate with will want to see a three month payment history. Your broker can clarify any lender requirements with you.

Once you consolidate your debt it will all become a 'secured debt' - you'll need to have the financial means to stay on top of your regular repayments or face penalties. To keep your spending in check it’s a good idea not to seek further credit cards or loans unless you’re sure you can pay it back quickly. It’s also a good idea to create a household budget so you can manage your future spending.