Be careful about consolidating your debts
Many borrowers may use refinancing as a means to consolidate their debts – this means lumping things like credit card debt and personal loans into one bigger mortgage and paying it all off in one single monthly repayment.
Done well, debt consolidation can work if it results in less fees and interest.
But before you take out a new loan to consolidate your debts, make sure your new interest rate, including fees and costs, is much lower than what you’re paying on all the debts you are consolidating. If you end up paying a higher interest rate, you’re making your problem worse.
Also consider the length of your loan– even if the interest rate is lower on the new loan, paying off a short-term debt (like a credit card or personal loan) over a very long term means you could still pay more in interest and fees in the long run.
Borrowers should also be wary of unscrupulous practices and debt consolidation service providers who may suggest refinancing simply to earn a commission.
Every lender and mortgage broker must either hold a credit licence or be an authorised credit representative, so ask for a credit licence number or credit representative number and run a check on the ASIC registry (credit representatives, credit licence holders) to ensure the broker or lender is licensed.
This article was taken from Property Observer's free eBook: 12 tips for refinancing your mortgage.