News & Advice Money

Debt consolidation without plan?

With South African households spending an average of 40 percent of their income on debt repayments, many homeowners are looking at consolidating their debts into their home loan accounts, which carry a much lower rate of interest than most other forms of credit.

But they should beware of jumping out of the debt frying pan and into the fire, says Shaun Rademeyer, chief executive of mortgage originator BetterLife Home Loans.

Debt consolidation using your home as security should only be undertaken by very disciplined borrowers. And there’s no point in even starting a debt consolidation program unless you set manageable goals and know that you can live comfortably with the steps you take in order to achieve them.”

He says that if the capital component of a home loan has been reduced and is now well-below the market value of the property (which is generally the case if the owners have lived there for more than five years), it could be worthwhile to re-access a portion of the original loan and use this to pay off debts that carry a higher interest rate.

Related reading: Consolidating Debts Into The Mortgage Bond Gives Significant Savings

“Alternatively, if you own a property where the value has increased substantially since you took out your mortgage you may want to consider refinancing by taking out a completely new, larger loan, or a ‘further advance’ on your original loan and using the additional amount available to settle other debts.”

“However, if you do this you should aim to pay off the additional amount you have borrowed as quickly as possible, and get you mortgage liability back to where it was.”

“Simply borrowing the extra finance and extending the period over which the mortgage has to be repaid isn’t really saving – and could actually cost you more in interest in the long run.”

In addition, you should know that there are costs associated with extending your bond, such as a valuation fee, bond registration fee, and legal fees, and that if you don’t have cash to cover these but decide instead to add them to your debt, you will be paying interest on them over the life of the loan.

And of course, you should not take on any new debt or just run up your credit card balance again once you’ve consolidated all your old debt. You will already have a bigger home loan repayment obligation, and if you are unable to pay that as well as a new credit card installment, for example, you will be putting the roof over your head at risk.

What you should rather do, he says, is take all the money you have been paying off on other debts every month and add it to your new mortgage repayment, to quickly reduce the capital balance of the loan again. In this way, you might even end up paying your home loan off faster than anticipated and save yourself many thousands of rand in interest.

And before you even consider consolidating, Rademeyer says, you should establish what interest rate you would be charged on your increased bond amount as this could make all the difference to the viability of their plan. And you could seek help from a reputable mortgage originator that will negotiate on your behalf to ensure you get the best loan option to suit your particular financial circumstances.

This article “Dangers of Debt Consolidation Without A Plan” was issued by BetterLife Home Loans.

Leave a Reply

You might also like...

5 Good Reasons To Preserve Your Home Equity
Consolidating Debts Into The Mortgage Bond Gives Significant Savings
Do’s And Dont’s Of Home Equity
Need Cash? Borrow From Your Bond
Promising Residential Market Despite Recession
10 Questions To Ask The Real Estate Agent During a Show House
Neglecting Home Maintenance Will Damage Sale Price
5 Reasons You Should Work With a Real Estate Agent
5 Financial Tips To Stay Afloat As a First-Time Homeowner
3 Helpful Tips For a Stress-Free Moving Day
Demand For Rental Properties Rising Due To Low Confidence Levels
4 Must-Read Questions About Your Property’s Perimeter
4 Clear Signs It’s Time To Sell Your Home
Which Are The Pitfalls Of Using Multiple Agents?
4 Things Agents Consider When Setting The Asking Price
The Ideal Estate Agent
Repo Rate Cut: Encouraging News For Home Buyers
Is Now The Right Time To Upgrade To a Bigger, Better Home?
Why Creditworthiness Is Just As Important For Tenants
6 Defects To Watch Out For When Buying Property
10 Questions To Ask The Real Estate Agent During a Show House
4 Ways An Offer To Purchase Can Lapse
First-Time Home Buyer? How To Avoid Tax And Get Up To 44% More Space
Is Now The Right Time To Upgrade To a Bigger, Better Home?
Is Investing In Property During The Recession Still A Good Idea?
28 Important Questions To Ask When Buying Property
3 Most Annoying Things About Buying A Home (And How To Avoid Them!)
House Hunting: How To Get Over The One That Got Away
Factors To Consider When Letting Out Property
7 Deadly Sins to Avoid When Investing in Property
4 Hot Tips For Investing In Student Accommodation
Is Property an Asset or Expense?
Property Buyers Value Lifestyle Over Value-Growth Prospects
How Older Buyers Show The Power Of Home Equity
8 Tips On Selling an Empty House
Neglecting Home Maintenance Will Damage Sale Price
The Do’s And Dont’s of Selling Your Home
4 Clear Signs It’s Time To Sell Your Home
Which Are The Pitfalls Of Using Multiple Agents?
4 Things Agents Consider When Setting The Asking Price
Top Tips For Selling Your Home in Winter
5 Easy Ways to Sell Your Home FAST!
Unrealistic Expectations Can Sour Relations With Agents
Cut Your Price and Get The Jump on Other Homesellers
Unrealistic Seller Expectations Contribute To Declining Sales
Key Aspects And Features That Sell Homes
Lightstone predicts a buyer’s market for 2017
House Won’t Sell? Here’s What You’re Doing Wrong!
Factors that determine property value
#SmartHomes: The No.1 Tenant Amenity Today Is Wi-Fi
Demand For Rental Properties Rising Due To Low Confidence Levels
What About Pet Ownership In Sectional Title Schemes?
Why Creditworthiness Is Just As Important For Tenants
Factors To Consider When Letting Out Property
New Landlords Need Experienced Agents
The Perils of Rising Consumer Debt For Landlords
First-Time Tenant? What You Need To Know
Average residential rental values on the increase
Is It Possible To Terminate A Lease Agreement Without Recourse?
New Generation Digs Now On The Rise
When Is Your Rent Due?
Gauteng Property Rental Market Forecasts Growth
Keeping Track of Parking On Common Property
How And When To Legally Evict Tenants
3 Helpful Tips For a Stress-Free Moving Day
Divorcing And Need To Sell? 3 Possible Options
5 Mistakes To Avoid When Relocating
7 Tips For Packing And Moving Quickly
Moving? Things To Think About!
Maximising Small Spaces
7 Tips To Help Your Children To Adapt To The Move
What To Do With Your Home When You Have To Relocate
Moving With Pets Can Be Tricky
Estate Agent Moving Tips
Telltale Signs You Need A New Home
Seven Signs You Need A New Nest
Über Wealthy On The Increase And On The Move
5 Financial Tips To Stay Afloat As a First-Time Homeowner
First-Time Home Buyer? How To Avoid Tax And Get Up To 44% More Space
Repo Rate Cut: Encouraging News For Home Buyers
Is Investing In Property During The Recession Still A Good Idea?
4 Hot Tips For Investing In Student Accommodation
Make Your Bond Work For You
Energy-Saving Tips For Your Home This Winter
Costs To Consider When Investing In Property
Smaller Properties Yield Great Investments
8 Myths Preventing People From Real Estate Investing
Own Fixed Property? You Need a Will!
Tax Tips for Landlords – What You Need To Know
The Perfect Investment Property
St Francis Bay’s housing market attracting top dollar
Factors that determine property value
5 Reasons You Should Work With a Real Estate Agent
Is Hosting Your Property On Airbnb Legal?
How To Protect Your Commercial Property Investment
Commercial property still important asset class for private buyers
Know The Risks Before Building Airbnb Castles In The Sky
Green Buildings Catching On In South Africa
Digital Disruption And The South African Commercial Real Estate Market
Can You Run A Business From A Sectional Title Home?
What’s Driving Change In The Commercial Property Sector?
5 Ways Commercial Property Space Planning Can Save You Money
Investing In Commercial Property an Attractive Option
3 Obvious Signs That It’s Time For Office Relocation
3 Things You Need To Know Before Buying Vacant Land
Price Correction In Commercial Property Market
South Africa: Evolution of Industrial Properties