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Here’s a quick case study of a Sydney couple who came to us wanting to consolidate all their loans into their home loan... And walked away knowing that they were about to own their home
Keith and Sarah had just returned from a wealth seminar and were all fired up to get their finances in order. They were told at the seminar that they should consolidate all their debts into their home loan which would reduce their monthly repayments. From here they should then use the amount of money they saved in interest to pay a little extra off the home loan.
I was walking by the meeting room and heard Keith say this to one of my team. As a nosey neighbour, I simply couldn’t help popping my head in and adding my two cents worth. First of all I congratulated Keith and Sarah for taking an active interest in reducing their debts but at the same time I thought I’d set the record straight and give them a piece of vital information that the other seminar company forgot to tell them.
When you are consolidating short term debts into your home loan you must always partition them as separate loans under your main home loan and set short terms for your short term debts of say 3 to 5 years. Otherwise you will be converting your short term debt (ie credit card) into a 30 year term and paying tens of thousands more in interest!
They thought consolidation was simply to put everything all into one bucket and off you go. There is definitely a bit more to it as a smart consolidation requires smart loan structuring.
Let me now show you what I did for them.
Here’s what they had:
• A home worth $550,000
• Home Loan owing $400,000 at 7%pa
• 2 Credit Cards owing $10,000 paying 13.25%pa each
• A Personal Loan owing $15,000 paying 14%pa interest
Total debts = $425,000 and a total loan to value ratio of 77%.
First things first - we refinanced them to another bank who offered a lower rate and more flexible features to the loan so that we could get the structure we required to make this happen. To make a long story short, we then set the new home loan rate at 6.21%pa variable Plus we got them a discount on the rate of 0.5%pa for the term of the loan. We then fixed the personal loan and credit card debts (ie $25K) as a separate loan within the overall loan structure over 3 years and fixed at 7.76%pa.
Hence we achieved a straight up annual saving of interest across all their debts of a over $4,000pa. Plus they were going to be credit card and personal loan debt free in 3 years. Something that they thought they wouldn't achieve for many years.
But wait there is more…
Keith said to me that he believed that he could now afford to put an extra $50 to his $400,000 variable mortgage each month as an extra repayment as a result of this new structure. He wasn’t too sure how much of an impact this would have but he thought it could be a good start. But, when I told him that he would save about $31,000 in interest and he would pay off his home loan 2.7 years faster just by paying an extra $50 a month he nearly fell off his chair.
He really hit the ground…
…when I told him that if he simply switched to a fortnightly repayment schedule and paid the extra $50 per fortnight he could save a whopping $63,000 in interest and pay off his home 7.2 years faster.
If you would like to see if you could have as much success as Keith and Sarah have had simply fill out the form below and we’ll be on the phone to set up a time to have a chat.
Please Note - we can only help people who have equity in their home, only 4 credit cards owing $30,000 maximum, a good income and a good credit rating.
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