Card debt in your mortgage: cheaper?
Rolling credit-card debt into a home loan may reduce the interest rate and monthly repayment. It does not erase the debt. If the repayment period is stretched over many more years, the borrower can still pay more interest overall.
Moneysmart, ASIC's Australian Government money guide, says debt consolidation can cost more when the new loan takes longer to repay. It also warns that changing unsecured card debt into debt secured against a home can put that home at risk if the new loan cannot be repaid.
A $10,000 worked example
Illustration only: $10,000 repaid monthly at 18% p.a. over three years is about $362 per month and about $3,015 in total interest. The same $10,000 at 6% p.a. over twenty years is about $72 per month but about $7,194 in total interest — approximately $4,179 more.
The calculation assumes constant rates, equal monthly principal-and-interest repayments, no fees and no new borrowing. It compares only this $10,000 debt, not an existing mortgage balance, and is not a loan quote. Actual rates, fees, terms and repayment options vary.
Three checks before consolidating
1. Ask when this debt will be cleared — compare the proposed repayment period with the time it would otherwise take to repay the card. A lower monthly amount may simply reflect a much longer term.
2. Compare the full cost — add interest and every fee, rather than comparing rates alone. Moneysmart recommends checking the rate, charges, loan term, repayment amount and whether extra repayments are permitted without penalty.
3. Check what secures the debt — card debt is normally unsecured. When it is added to a home loan, the home may become security for that debt. Consider this risk and whether old credit limits will be closed or reduced so debt does not build again.
Compare the repayment plan, not only the rate
Bring the current balances, rates, fees, minimum repayments and remaining terms to BV Finance. We can compare proposed structures and repayment timeframes so the monthly cash-flow change and long-term cost are visible before an application is made.
Sources and practical tools
General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.
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