FinanceComparison.com.au

How To Consolidate Unsecured Debts Into Your Mortgage

Debt Articles > Article: How To Consolidate Unsecured Debts Into Your Mortgage

For many people, consolidating unsecured debts into your mortgage is an excellent way to simplify your finances and become debt free more quickly. If you are overwhelmed by unsecured debt (such as credit card debt or other unsecured loans), consolidating these unsecured financial obligations into your mortgage loan has many benefits. Consolidating unsecured debt into a mortgage can:

  • potentially save you thousands of dollars in the long run
  • reduce your total monthly payments
  • help you become debt free faster
  • improve your credit rating

In order to consolidate unsecured debts into your mortgage, you must borrow more than the balance of the mortgage loan you are refinancing. The extra money you borrow is then used to repay the unsecured debts you are consolidating into your mortgage, which will in turn affect the amount of your monthly mortgage payments. In many cases, consolidating unsecured debt into your mortgage can help you save money on your monthly debt payments and greatly decrease the amount you expend over the lifetime of the loans.

 

Second Mortgage versus Line of Credit Home Loans

Unsecured debt, such as credit card debt, can generally be consolidated into your mortgage payment in one of two ways: a second mortgage or line of credit home loans. When you consolidate unsecured debt into a second mortgage, you take out a second loan on your home and use some or all of the funds to repay the unsecured debts. This loan is secured using your home as collateral. The second mortgage will have a set term, frequently ranging between five and 15 years, and a set interest rate. You will pay on the second mortgage (as well as the first) until the balance is paid off, at which point you are released from the debt and the account closes.

A line of credit home loan, on the other hand, works much like a credit card. A line of credit home loan is a revolving account, which means that as you pay the balance down, the money is then available for use again. To consolidate unsecured debts using a line of credit home loan, the homeowner will borrow money against their home to repay the unsecured debts and then begin making one monthly payment to repay the line of credit. Again, the borrower's home is used as collateral for the line of credit.


To determine whether debt consolidation is appropriate for your personal financial situation, you must first calculate the total amount of your current monthly debt payments. You should also know how long it will take you to pay off the unsecured debt at your current rate of repayment. You can then compare these calculations with the added amount to your monthly mortgage payment and the length of time it will take you to repay the extra debt on your mortgage and over the life of the new mortgage loan. You might discover that consolidating your unsecured debt into your mortgage will save you thousands in interest and greatly reduce the length of time it takes you to repay these unsecured financial obligations. Furthermore, many lenders will allow you to skip one to three mortgage payments when you refinance your mortgage loan. You can then apply the money you've saved by "skipping" these mortgage payments toward your unsecured debt.


Although refinancing unsecured debt into your mortgage is actually extending your debt, the consolidation will usually decrease your payments enough to make your monthly cash flow positive. In addition to decreasing your monthly payments, consolidating unsecured debt into your mortgage payment will also allow you to benefit from the tax write offs associated with the interest on your mortgage. However, consolidating unsecured debt into your mortgage is only an effective solution if you have addressed the spending issues that caused your financial issues to begin with. If your high unsecured debts were a result of spending beyond your means, you must adjust your budget to prevent yourself from landing in the same situation in the future.

Both second mortgages and line of credit home loans are effective means to control unsecured debt and lower your monthly payments. In order to decide whether consolidating unsecured debt into your mortgage payment is the right strategy for you, speak with a certified financial planner or mortgage broker. When you meet with a financial adviser, remember to bring balance statements for all of your unsecured debt to the appointment so that the adviser can better assess your current financial situation and advise you of the appropriate means of action.

 

Return to Top

Credit Cards

Credit Cards

Compare credit cards to find low interest rates, low fees and great rewards on offer in Australia.

Personal Loans

Personal Loans

Compare a range of personal loans. Compare rates, terms, lenders and save!

Bank Accounts

Bank Accounts

Banks are offering great deals on term deposits and high interest online savings account, which one will give you a better deal?

Home Loans

Home Loans

We compare a range of home loans with low rates and great features. Get a free home loan quote today.