A quick guide to debt consolidation through refinancing
Estimated read time: 3 Minutes
Refinancing multiple debts into your home loan could help simplify your finances – especially if you’re juggling many loans, each with different repayments, fees and interest rates.
Sounds like a great idea? It’s still important to recognise that refinancing is a big financial decision that should not be taken lightly. It’s important to consider the long-term cost of the refinance versus the short-term savings in order to work out if it’s a good fit for your individual situation.
Before deciding if this is the right choice for you, it is important to understand how it all works. This guide provides 5 simple steps to consider when refinancing.
Debt consolidation home loans explained
Five steps to refinancing with a debt consolidation loan
Whether you're refinancing because you want a better deal, need a different product, or you'd like to switch to another lender, there are simple steps that could help you refinance your mortgage. Ready to consolidate your debts by refinancing? First, you need to know what to expect.
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Step 1. Make sure it's the right option for you
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Be clear about why you want to refinance. If you’re struggling with your finances and are feeling a little overwhelmed, debt consolidation might be able to help by simplifying your finances and helping you to pay off your debts. Ideally consolidating your debts means better management of your finances. But If you’re looking for an easy way out of credit card debt, you may want to re-think your spending habits.
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Step 2. Work out all the costs involved with your existing debts
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To make sure refinancing is worthwhile, you'll want to understand all the costs involved with each existing loan. Write down your individual repayment amounts, loan interest rates and all the fees associated with your current debts.
You might be enticed by low interest rates but there’s more to refinancing than rates alone. Some home loans might offer low interest rates but then come with additional fees. So it could be a good idea to see if there are upfront costs involved when switching to a new home loan or lender. -
Step 3. Find out how much you can borrow
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Once you’ve calculated the combined total of your loans, check you’ll actually be able to borrow the amount you need. As a first step, it is a great idea to speak with your current home loan provider as they may be able to review your mortgage and offer you a better deal. To get you started, use our borrowing power calculator to find out how much you could possibly borrow.
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Step 4. Compare different loans
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If you decide to switch to a new home loan you need to make sure you’re really getting a better deal – because the idea is to save money and pay off your debts. Look for a combination of low interest rates and minimal fees.
It’s also important to consider the features that you like and don’t like about your current home loan. If offset accounts and redraw facilities are important to you, check whether they’re available with your new loan. You can also compare loans based on the flexibility that they offer. Do you prefer to have certainty over outgoings, or would you rather the option to make extra repayments?
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Step 5. Know the fees for refinancing
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Your existing loans may charge exit fees if you pay them off early. There will also be fees associated with opening a new loan. Ask your lender for a complete list of fees that you need to budget for and work out if the upfront cost will pay off in the long run. Find out more about the the fees you can expect to pay when refinancing your home loan.
Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending
Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.
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Need some help with your refinancing?
There's a lot refinancing can do; from unlocking your equity to consolidating debts in to your home loan.
Some great resources are here to help you understand your options.
Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
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The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.
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