People that Refinance Homes for Debt Consolidation

Have you wondered how it works when people refinance homes to do debt consolidation.

Refinancing your home loan to consolidate your debt is not a new thing, but people have only recently started realizing the benefits and that's why it has now become a popular thing to do.

How does it work?

Well firstly you need to have equity in your property, that means that your property must be worth more than you currently owe. That difference should also not be more than 80% Loan to value (LTV) which means, if the property is worth R1 000 000 and you owe R900 000 the LTV is 90%, then you can't apply.

The banks have put a restriction on the amount you are allowed to owe in relation to the value of the property. That amount differs from bank to bank, but is generally between 80-90%.

I have enough equity, does it guarantee my refinance home loan?

No, unfortunately not. You also have to qualify on your income and affordability. Generally you are allowed to use 30% of your joint gross monthly income for a bond repayment, but after your salary deductions and monthly expenses are deducted you must still be able to afford the bond repayment.

Isn't it expensive to use your home loan to refinance?

It is expensive if you use the bond to pay off your car or credit cards and just continue to pay the minimum bond installment over the term of the bond which is normally 20-30 years. I suggest that you use the monthly saving on the debts you've paid off to pay an additional amount into your bond. Not only will you save on interest, but you will pay your bond off much sooner and not pay back your debts over 20 years.

I hope that this short article helps you to understand why people refinance homes for debt consolidation and how it can benefit you.

To find out more about how refinance homes loans can help you, go to www.debtconsolidation-loan.co.za