A debt consolidation home loan is a loan which will take all your existing debts and refinance them into one single home loan. It brings all your existing debts under the one loan, leaving you with a single loan and a single amount to repay.
Having multiple debts such as a home loan, credit card, car loan or personal loan can be a stressful situation to be in. There are often different lenders, interest rates, due dates and repayment amounts. It can often get overwhelming and stressful for everyone involved, especially if you are having issues meeting your repayments.
A debt consolidation home loan can reduce the stress on having multiple debts. Benefits of a debt consolidation home loan include:
A debt consolidation home loan is suitable for anyone looking to bring their existing debts into one manageable loan. It is suitable for people with other existing debts looking to consolidate them into their existing home loan.
There are many types of debts out there that you are able to consolidate into the one loan. They include:
Credit cards are the worst offenders when it comes to personal debt. They have a notoriously high interest rate and a bare minimum repayment amount which can be a lethal combination.
Whilst car loans have a more manageable interest rate than credit cards, their loan term is short. 3-5 years as opposed to 30 years, so their repayment amounts are higher.
Again, personal loans have a higher interest rate and a shorter loan term.
Store cards are simply another name for credit card – a dangerous cycle to enter into!
So, if you are considering applying for a consolidated home loan, what is the process you are entering into?
The first step your bank will take is to calculate how much equity is in your existing home. To put it simply, you will require enough equity in your existing home to repay the new, consolidated loan amount. The new loan amount will be the total of your existing home loan plus your collaborated debts you are consolidating.
You will need to provide paperwork of all your existing debts and their pay-out amounts
Once you have your equity confirmed and your total debt amounts, you will be able to calculate your new single monthly loan repayment. Check that this amount is indeed less than the existing amount you pay for the total of all your loans/debts. Also check how much you will save on interest repayments.
If you have multiple debts, you can consider a consolidation loan at any point. Some banks may have restrictions on the time period you can apply for an increase to your loan amount if it is a new loan. As long as you have the equity in your property and the means to repay the new loan amount, you can put forward a strong application.
Do your research. Know the equity you could have tied up in your property. Research what the market is doing in your area and provide recent sales to the bank.
If employed, have the last 6 months’ payslips ready. If self-employed, have the last 2 years financial records from your business ready to go.
Have your credit rating history ready to go upon application. If you do have some less than favourable credit history, have evidence to support and explain the negative entries on the report.
Compile the repayment history of all your existing loans/debts so you can show to the bank you have a reliable payment history.
