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Warning: This fact sheet is for information only and should not be relied upon as legal advice.
This information applies only in Victoria and was updated on May 28 2004.
Use this factsheet if you:
• have a number of loans;
• are thinking of taking out a new loan
to pay all your existing loans;
• want
to
know more
about
consolidating your debts.
What is involved in consolidating debts?
Lenders offer a range of refinancing and
consolidating loans to people with debts.
“Refinancing” means you get a
new loan to pay out an existing
loan. “Consolidating” is a type
of refinancing that usually means
getting a new loan to pay out a
number of other loans. Many
home loans have an option that allows the
loan to be extended to consolidate other
debts.
The most
common
reasons
people
consolidate debts are to:
□ Reduce monthly debt payments,
Manage one debt instead of having a
number of debts,
Save
money
by
getting
a
consolidation
loan with a
lower
interest rate to pay off debts with a
high interest rate.
Debt consolidation does not always achieve
these aims.
In many cases, debt
consolidation
is more expensive
than
keeping your loans as they are. It can put
you, co-borrowers and other people who
guarantee your loan, at increased financial
risk.
Should I refinance my home loan?
If you want to include all your debts in your
home loan it will probably be cheaper to
extend the length of your current mortgage
than to refinance.
A new personal loan to pay out other debts,
will have a higher interest rate than your
home loan.
Will consolidation save money?
In most cases, consolidating or refinancing
won’t save you money.
If a new loan has a lower interest rate than
the interest rate on your largest loan, then it
might save you money to consolidate.
However, there are other costs that you
have to take into account when comparing.
The cost of establishing the new loan,
combined with early p