It is often an idea to at very least entertain the thought to refinance your home and use the equity in your home to pay out other debts, that may carry a much higher interest rates than your home loan refinance rate.
The first port of call is to work out if there is any real benefit in consolidating those debts into the mortgage to begin with. You need to work out what are the benefits to you?
You will need to have enough equity in the home available to pay out the other debts, otherwise you may have to resort to the fact you can only fit in some of your outstanding debts.
How much equity do you need to refinance?
Obviously you need to have enough equity to not only consolidate your debts, but also to keep within the parameters the lender set as the maximum LVR (loan to value ratio) they are willing to lend to, based on your current home valuation
You also need to be able to show that you can afford the higher new home loan repayments, with the extra debt included.
Refinance with bad credit debts
If you have bad credit, there will be a restriction on how much you can borrow, based on your home loan valuation. Some non bank or non conforming lenders will allow you to consolidate debts up to 90% LVR, so long as any bad credit or defaults you currently have are not too large.
If you go over 80% LVR, there is usually mortgage insurance required, which will be an extra cost, and may make the whole process of refinancing an unrealistic proposition, when you way up the benefits against the costs to refinance.
There are a few non bank or non conforming lenders that will not charge you mortgage insurance, and will instead just charge you a fee, sometimes known as a risk fee, which can be capitalised into the home loan too.
This can be a very viable option as sometimes it can be tough to get the mortgage insurer to approve your loan if you have some bad credit or credit issues.
What will lenders agree to consolidate into a home loan?
Home loan lenders will pretty much allow most of your current debts to be consolidated, so long as you have proof of the debt.
If you have a sports bet account that you want to be consolidated, you may have some issues getting that approved, as lender are not too happy with gambling debts, however any normal type of debt such as a car loan, personal loan, business loan or credit cards are generally allowed and looked upon favourably by the home loan refinance lender.
You will be asked to provide statements on each debt to be refinanced, and the lender will be looking to make sure you have good conduct on the debts, ie: kept up with the repayments.
If not, it does not mean you will be declined, but you may be penalised with a higher interest rate due to the fact you have been a little hasty or slow in making repayments on your current debts.
So long as the lender can see that you are refinancing to enable an overall lower repayment across all debts, even if a higher interest rate on your home loan will be the end result, then you should be fine to refinance.
There are so many home loan refinance options available, with or without bad credit, sometimes your best bet is to speak with your current lender, and if you can refinance, consolidate your larger and higher interest debt, into a suitable home loan refinance, and you will end up with a lower repayment schedule overall, then it is definitely worth considering a refinance of your home loan.
If you would like to know more about a home loan refinance with debt consolidation, or any other questions about a home loan refinance or bad credit in general, please feel free to contact 1800BADCREDIT on 1800 223 273 or go to our website www.1800badcredit.com.au