If you have two or more loans on the same property, like a mortgage and a home equity line of credit, you may be able to save money in the long run by consolidating those debts into a single loan. Here’s why you might want to consider this route for your home loans:
Reduce Your Interest Rate
If your credit rating wasn’t as high when you obtained your home loans as it is now, you may be able to lower your rate by refinancing into a single loan. This can also be a good option if your two loans have vastly different interest rates. Combining them can bring the rate down to a lower level, which can save you a lot of money down the track.
Eliminate Risk of a Variable-Rate Mortgage
Variable-rate mortgages are popular because they tend to have much lower initial interest rates than their fixed-rate counterparts. However, once the introductory period has passed, variable rate mortgages are far more risky. If the current interest rate rises, your monthly repayments could increase significantly, which may render you unable to continue to make those payments or force you to cut other expenses. Consolidating into a new mortgage with a fixed rate can eliminate that risk, even if the interest rate is slightly higher.
Pay Off Loans Faster
If you are able to achieve a lower interest rate, you’ll be able to repay your loan much faster if you continue to make the same monthly repayments as you were before. This is because more of your payment will go toward the principal balance of the loan, thus reducing the amount of interest you will have to pay over the life of the loan. The more you are able to pay each month, the faster you will get your loan paid off.
Lower Monthly Repayments
Rather than having multiple repayments to make each month, consolidating your home loans means you’ll only have to make a single repayment. Typically, the amount of this one payment will be much lower than the combined total of your previous payments. This can free up extra cash for you each month, which you can use to repay other debt with higher interest rates or to pay for other needs for your family. You could even use the extra funds to spoil yourself with a holiday if you like!