Re-Finance Your Existing Mortgage and Consolidate Debt


Want to get a better mortgage rate AND a better rate on other debt such as car loans and outstanding credit card balances?

Let’s look at an example which refinances your mortgage, but goes an extra step and consolidates some other debts into the mortgage. 

We will assume that not only do you have your mortgage but there is a balance outstanding on a car loan and you would like to reduce the amount of interest you are paying on a credit card balance.  The interest rate that you pay on these loans is higher than that which you pay on a standard mortgage.

The total amount you owe on the car loan plus the credit card is $25,000.  Interest rate for the car loan is 7.5% and the credit card a hefty 19.9%.  Your monthly repayments are $550 for the car and $200 for the credit card.

Let’s see what happens when you consolidate

If we add this extra loan amount to the mortgage, it means the mortgage balance outstanding becomes $301,526.

With the house valued at $550,000 our LVR is now 301,526/550000 which is 54.8% and still acceptable and way below the 80% lenders mortgage insurance cut-in.

How do the numbers stack up with this scenario?

Your property is now valued at                      $550,000
Mortgage balance with debt consolidation    $301,526

New interest rate                  4.69%
Term of mortgage                 20 years
New monthly repayments     $1,939

If we stayed with the original mortgage we would be paying, per month, $1,962 for the house, around $550 for the car and $200 for the credit card. A total of $2,712.

With a re-finance consolidation we now pay a total of $1,939.

That’s a difference of $773 per month or $9,276 per year.

The downside is that you are paying off the car loan and the credit card at this lower rate for longer, but given the advantage of this lower rate, there is nothing to stop you paying more off your mortgage each month, and thus effectively paying of the car and the credit card just as quickly and at this much lesser rate.

Summarising Why Refinance your Mortgage?

a. Lower your periodic payments by paying less interest.
b. Consolidate debt and pay interest on existing loans.
c. Finance a renovation by adding this to your current mortgage if you have sufficient equity in your home.
d. Purchase an investment property, again using the equity in your home.

e. Purchase a second home.
We had been thinking about re-financing for som...

Mel and Ross Johnstone
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