Debt consolidation involves the refinancing of expensive personal and credit card debt with a more cost-effective home mortgage facility. This strategy is suitable for clients who have equity in their home but are paying off a mortgage and also have other debts such as personal loans or credit cards. They can increase their mortgage facility and use the extra money borrowed to pay off their other debts at an interest rate that is likely to be lower.
It’s important that the client maintains the same repayment levels prior to consolidating their debts. If they don’t, they could end up taking longer to repay the loan and incur more interest overall.
This strategy can also be used for:
- Effective use of cash reserves
- Controlling cash flow
If the client’s current home loan does not provide a mortgage offset and/or redraw facility, you may consider (subject to credit licencing requirements) whether it’s appropriate to recommend they refinance to a product that has these features.