Debt can be one of two things, an enabler that gives you cash when you need it or another asset that adds value to your life. While long term debt can allow you to buy assets that can help you to create a better life, short term debt can land you a lot of high interest debt.
Interest can add a lot to your monthly repayments. The interest rate you pay has a large effect on your monthly repayments, thus lowering your interest rate can make your debt more affordable. Interest rates are based on risk , therefore you need to lower the risk to lower the rate. A bond or home mortgage is lower risk than an unsecured credit card or personal loan as it is backed by the property itself. This allows you to get a low interest rate on your home mortgage. A great way to make use of your low interest facility is to refinance your debt into your bond. This allows you to take advantage of the low interest rate and consolidate your debt into one easy repayment.
How Home Mortgages Work?
Before you can understand how to refinance your debt into your home mortgage, you need to understand how a home mortgage works and the components that make it up.
A home mortgage is a property backed loan that allows you to purchase a house without having the full capital required on hand. You often have to put down a deposit, industry average is 10%, and then there are strict affordability requirements to get approved.
There are three main components in a home mortgage:
- Capital Owed – Capital owed is the amount of money you owe from your initial loan before interest and fees. If you were to take out a R1 000 000 bond, your capital owed would start at R1 000 000 and decrease from there.
- Interest Owed – This amount is the amount of money you owe over time as interest. This amount will decrease as you make repayments and can decrease more if you make early or lump sum payments. If your bond has a variable interest rate, the interest owed can change with the interest rate changes.
- Equity Available – This is the amount of money you have paid off in your bond. If we use the R1 000 000 example, after a number of years you have paid the amount of capital owed down to R800 000. This means you equity in your bond in R200 000. While this may not be directly available to you, it means that you owe less than your home is worth and have equity available.
How Refinancing Works?
When you refinance your home mortgage you are using the equity available to pay off your other debts. Depending on how long you have had your home, you may be able to have it reassessed and get a bigger home mortgage. This is because property values usually increase over time. This will depend on other factors besides the value of your home, including your income, credit score, affordability and Loan to Value.
The process starts with talking with one of our assessors or independent financial advisors who will assess your situation and identify your key needs. We will work with you by negotiating lower rates with your creditors on your behalf, and consolidate your debt into your home mortgage.
We put you through the Edvance foundational financial literacy program. The 12 month financial literacy program is aimed at equipping you with the knowledge needed to reach your financial goals, and to help you understand why you got into the first place, and how to never get into debt again. During this process our team will get you out of debt, remove flags or judgements on your name, and improve your credit score and switch you over to a traditional mortgage lender.
Is it Worth it?
When you look at alternative options like high interest consolidation loans, our system has been proven to save clients money and equip them for a better financial future. Some of our clients are saving up to R7 000 a month by refinancing their debt into their home mortgage.
While your home may be a great place for you to relax, recoup and make memories, it also has the ability to make your financial life easier. Though refinancing may sound like a complicated task, it is made easy thanks to our dedicated team.