How refinancing your home loan could help you get on top of personal debt

Financial resilience is top of mind for most of us right now. You may be reviewing your expenses and thinking, how can I reduce my costs?
Jessica Pilon-Summons

Financial resilience is top of mind for most of us right now.

You may be reviewing your expenses and thinking, how can I reduce my costs?

Many people know that refinancing can help them to get a lower interest rate on their home loan, but you might not have considered other ways refinancing can help you to become financially resilient.

Consolidate and save

When it comes to debt, the goal is to pay as little interest as possible

One way to achieve this is by consolidating personal loans (e.g. credit cards, car loans or any debt with high interest rates) into your mortgage which generally has a much lower interest rate.

By doing this you may be able to reduce the amount of payments you are managing and bring down your monthly repayments to a lower amount.

Here is how this might look, say you have the following expenses:

**Debt type****Amount owed****Minimum monthly repayments**Credit card (19% interest rate)$6,000$150 (at 2.5% of balance)3-year car loan (10% interest rate)$15,000$484.01Mortgage (4% interest rate)$350,000$1,670.95**Total****$371,000****$2304.96**

If you were to consolidate your personal debt (the credit card and car repayments) into your mortgage, your expenses each month may look like:

**Debt type****Amount owed****Monthly repayments****Total**$371,000$1,771.21

As you can see in the scenario above, you stand to save $533.75 per month by consolidating your expenses.

The RBA’s most recent announcement set the cash rate to a historic low of 0.25% which is resulting in interest rates at generational lows.

Right now many lenders and banks are offering incentives to refinance, some in the thousands of dollars!

Now is an opportune time to take a look at your current loan and see if you could be on a better deal.

At the moment, if your comparison rate doesn’t start with a 2, you should call us to see how we could help you renegotiate or refinance to a better rate.

Keep in mind

It’s worth considering that this strategy isn’t foolproof. Whilst you are getting the benefit of simplifying the number of repayments you are making each month and paying less interest in the short term, if your payments stretch over a longer period, you may end up paying more over the lifetime of your debt.

Paying off larger amounts than your minimum repayment when you are able to can help overcome this and make sure you get the full benefit of consolidating your debt.

The real key is to maintain the same level of repayments with the new structure as you were with the old structure so you pay the principal off much faster and save bigtime over the long run.

Three important steps

If you’re concerned about your financial security right now, there are three steps you can take to become more financially resilient over the coming days, weeks and months:

  • Review your expenses
  • Consolidate your personal debt into a lower interest rate loan where possible
  • Check you’re on the best possible interest rate for your current circumstances, our tool loanScore is a quick and easy way to check

And with the likelihood of property values dropping and the uncertainty of full time employment for many over the coming months, now is a good time to act before your situation changes.

You don’t need to do this alone. uno’s team of brokers can help you through the process of refinancing and advise what options may be best for you.

You can contact us here.

Jessica Pilon-Summons
* Three year fixed rate, owner occupier, P&I loan with a maximum LVR of 95% and a loan amount >$150,000. Lender rates and products may change. We cannot suggest you remain in or switch to any loan until we complete our assessment. Fees and charges apply. ^ WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rate is calculated on the basis of a loan of $150,000 over a term of 25 years. ± All loan applications are subject to uno assessment and lender approval. uno does not guarantee that it will be able to find a customer a better loan than the one they currently have or to save them money.