REFINANCING TO CONSOLIDATE DEBTS INTO YOUR HOME LOAN AND/OR BECAUSE YOU ARE BEHIND IN YOUR HOME LOAN REPAYMENTS
REFINANCING : Being in financial difficulty is very stressful
If you are behind on your mortgage REFINANCING, it can be very difficult to negotiate with your lender and the lender may be threatening to take your home.
Even if you managing to make your mortgage repayments, but you being pressured by other créditons.
It can seem like the easiest option is to refinance your home loan and consolidate your debts to get everyone off your back.
BEFORE YOU REFINANCE THINK ABOUT THE FOLLOWING:
You are placing your home on the line
if you cannot pay the new loan you will lose your house!
You are cutting off options that may have been available to you such as surrendering your car (for car loans) or negotiating a reduced debt or repayment arrangement with your credit card company.
Renegotiating your charge card obligations (for instance) may stop the issues (at least for now), but it usually won’t save you money.
And it won’t stop you running up more debt afterwards (particularly if you are struggling to make higher home loan repayments).
Refinancing always costs money.
If you are in financial difficulty now, you will nearly always be better off financially if you can come to an arrangement with your existing creditors.
If you can’t negotiate an arrangement yourself, get advice.
Beware of lenders of last resort – see Predatory Mortgage Lending below.
CONSOLIDATING CREDIT CARD DEBT – THE TRUTH OF THE MATTER
CONSOLIDATING CREDIT CARD DEBT INTO YOUR HOME LOAN WILL NOT NECESSARILY SAVE YOU MONEY
While home advance loan fees are commonly much lower than charge card financing costs.
Home loans tend to be paid off over a very long period of time.
Meaning you could still pay more in interest over the life of the loan.
You also have to take into account the cost of refinancing.
If you are refinancing just to save money, you will often be better off simply increasing the amount you pay on your credit card rather than refinancing.
If you are refinancing because you cannot meet your repayments or reduce your debt.
PEOPLE WHO CONSOLIDATE CREDIT CARD DEBT OFTEN END UP WITH STILL MORE CREDIT CARD DEBT
Overseas research has found that borrowers who consolidate credit card debt into their home loans often incur more credit card debt afterwards.
completely defeating the purpose of the debt consolidation.
A 1998 study found that two thirds of homeowners who had used home equity to pay off credit card debt had additional credit card debt within 2 years.
A 2005 study found that low-middle income borrowers, who had consolidated credit card debt into their home loans within the last 3 years.
already carried an average of US$14,000 in credit card debt in addition to a larger mortgage.
PREDATORY MORTGAGE LENDING
If you are in financial difficulty and you want to refinance you will often be forced to go to a lender of “almost last resort” or “last resort”.
There are lenders who specialise in desperate borrowers.
Those lenders often advertise with slogans like :
‘bad credit-no problem”, and “sheriff at the door?”.
You can tell if you are at a lender of last resort because :
- The loan term will usually be 12 months (definitely less than 5 years);
- The mortgage broker will charge you a (large) fee;
- You will have to borrow a lot more to cover all the fees;
- You will be told you have to sign a declaration that loan is for business purpose even if it is not;
- They will find a solicitor for you that you have to pay.
Because your loan will increase significantly on refinance you will probably have difficulty making repayments.
This may lead to you losing your home anyway (with a lot less equity left in your home)!
SO WHAT CAN YOU DO?
Firstly, get advice, the earlier the better!
It may be possible to negotiate with your existing lender.
Even if your situation is hopeless, It may be better for your home to be sold than.
To refinance and increase your loan considerably just to live in it another year.