Almost every time I come across someone in mortgage repayment stress I find that credit cards and personal loans are the culprits.
One response to this situation is to look at a consolidation home loan.
This type of loan may significantly reduce the immediate cash flow burden on a borrower.
The table below attempts to demonstrate just how much cheaper a home loan can be compared to credit cards or personal loans.
NOTE: The overall interest cost of a loan is usually greater when the loan term is extended. One good way to avoid a higher “life of the loan” interest cost is to make additional repayments (above the minimum) on your home loan once the debt is consolidated.
Even if you are not experiencing mortgage stress, now might be a good time to make a pre-emptive move. There are a few good reasons for this suggestion:
1. Much of the Australian property market has experienced some level of capital growth over the last year or two. This means that many people now have enough equity to combine their personal debts into a home loan.
2. Interest rates are at record low levels which means that our incomes can borrow more. If interest rates begin to rise again, you may not be able to have a consolidation loan approved by the lender.
3. None of us plan to have lower income. None of us plan to lose our income. However, we all know that this is a possibility. Many of us take on income protection insurance for illness or injury but we can’t protect ourselves from business failure or the loss of a job. No income, no consolidation loan.
The main message here is to take action when times are good…… Times are good.