“We sat down with them and when we explained that they would be paying for their purchases on their credit card or for their car for the next 30 years, they soon realised that this wasn’t the best way to structure their finances!
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Consolidating your credit card debt, car loan or personal loan into your mortgage can be an effective way to reduce your repayments - provided that you restructure your debts the right way.
For example, if you purchase a car you might structure the financing over five years, because at the end of the five years you may consider selling the car.” If you were to structure the financing for your car over 30 years, it means that if you sell the car in five years time, you’ll actually end up holding onto the debt for an additional 25 years – which dramatically increases the overall interest you’re paying for the car.
“We recently had a client that came to us wanting to refinance their existing home loan, and they were looking to consolidate a credit card debt of $7,500 and a car loan of $23,000 at the same time,” Bartels says.
“Initially, their friends had advised them to consolidate the debt directly into their home loan when refinancing, which would have meant they were financing this debt over 30 years.
The advantage for our clients was that it reduced their overall monthly repayments substantially, as they only had one mortgage payment to make.
Generally, the main reason people consolidate their debts is to reduce the amount of interest their paying.
But many borrowers make the mistake of restructuring their new debt the wrong way, says Trent Bartels, director of “When homebuyers are looking to purchase a property, they’ll often finance their home loan over 30 Years.