09 Mar How to consolidate your debt well before tax time
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If you’ve racked up the debt post-silly season it could be a good time to reassess your home loan.
People’s Choice spokesperson Stuart Symons explains: “We’re in a period of historically-low interest rates with credit unions and banks looking to attract new business with extremely competitive offers.
“Many commentators are forecasting rates will rise later this year, so we are in a window of opportunity for anyone holding debt.”
Also read: 3 Steps to Prepare Your House for Sale
A ‘window of opportunity’ for debt-holders
Consolidating your debts into your home loan could see you take advantage of a much lower home loan rate, so you can pay off your total debt more quickly. It could potentially save you hundreds of dollars every month.
Yet refinancing you home loan is not just as simple as ditching your current loan for a new offer.
First your need to do some research.
Are you clear about what you want? Do you want to reduce your payments or pay down your total debt faster? Your answer will help shape the structure of your new loan.
Next steps to refinance
Any refinance requires details of your regular income, your expenses and those of your family, and your standing financial commitments – regardless of whether you intend to consolidate those commitments into your new loan. You’ll need to have these details ready to go before your lender can move ahead with your application, Symons explains.
“Your lender will then undertake checks on your credit rating, your property and standing commitments to assess your loan serviceability before being able to give you the go-ahead,” he says.
“Once a formal offer has been made and accepted, it may take some time to bring all parties together to finalise the old facilities into the new home loan, as your new lender will likely be waiting on all to return information for a mutually-agreed date.”
To start enjoying the savings a new home loan could potentially afford sooner rather than later, it could pay to start this process well before every financial institution’s busiest period – tax time.
Refinancing in FY18
When it comes to talk of an interest rates rise, many experts are running with the theme of “not if, but when”.
“Markets are expecting a rise in interest rates later in the year, pointing to growing international growth forecasts and rising rates in the United States,” Symons says. “On the other hand, the Reserve Bank recently said inflation – which is its key measure when setting its own cash rate – is expected to remain low ‘for some time’. You would therefore have to look for an answer between those two points. We have historically low interest rates, so it is reasonable to expect them to rise. When? That is always the question.”
For those considering refinance, the uncertainty around this question could be another reason to move quickly.
Home loans for debt-holders?
So, is there a specific type of home loan that debt-ridden souls should look out for?
The short answer is no. Everybody’s reasons for wanting to consolidate their debts are different, so it comes down to the individual’s circumstances and what they are wanting to do with their money in the long-term.
However, Symons does share a few key points to remember:
- Low rates aren’t the be-all and end-all. “Always check the fees too, which are factored into the comparison rate.”
- An offset facility may give you more freedom in your life. “You don’t necessarily have to compromise on low rates, either.”
- Freedom to repay when you want to could be an advantage. “This feature could allow you to take advantage of surprise opportunities.”
- Investigate whether your lender offers split facilities. “You might be able to consolidate your debt but retain a separate facility that mimics a car or personal loan but at a lower rate. This will let you either access the lower rate of the home loan, or maintain your payments at their current rate to pay off the facility faster.”