Can refinancing your mortgage help you get debt-free?
Refinancing can help you save money on your home loan.
But it can also be an option for getting on top of other debts you already have from credit and store cards or personal loans. Find out what you need to know to decide if this is a good option for you and your money situation.
If you have a home loan, it’s worth looking around once in a while to see if you can get a better rate. Even a small discount on the interest you pay can save you thousands of dollars over the life of your loan. And if you’re looking at refinancing your home loan, it also gives you a chance to look at different types of loans - choosing a fixed interest rate instead of variable for example. You could also explore refinancing to access the equity in your home to pay for renovations.
Getting all your debts in one place
Refinancing your home loan can also be a way to help you manage other debts you already have. Compared with the interest rate you pay on personal borrowings – like credit cards, store cards and personal loans – your mortgage interest rate is likely to be much lower. By refinancing your home and borrowing a little extra to clear your debts, you’ll be paying a lower rate of interest across all your borrowing. Plus, you’ll only have a single set of repayments to keep track of, making your finances simpler and easier to manage.
Is it right for you?
This strategy for managing debts can work for you if you have equity in your home. This means the value of your home is greater than the balance of your home loan. It can allow you to borrow more than the current balance of your home loan and use the extra money for something else - usually to pay off debts or to put towards home renovations.
But even if you do have the capacity to borrow extra on your home loan, it’s important to consider the overall cost of your debt. While the interest rate may be lower on your mortgage, if you’re paying off debts over 20 years instead of two or three, you could actually end up paying more in interest in the long run.
To make sure you’re not paying any more in interest than you need to, you could look at changing to a shorter term on a bigger loan. This can help you save on interest, but you’ll need to be able to afford the repayments for your new loan arrangement. You can use our loan comparison calculator to see how much you’ll pay in interest if you refinance your home loan and increase the balance to include your debts.
Speaking to a Beyond Bank home loan specialist can help you work through your options for managing your debt and decide if refinancing to pay them off is right for you.
