Consolidating Debts and Your Mortgage

Desperate Australians are draining their super retirement savings to fend off mortgage foreclosures in record numbers despite the improvement in the economy. As the global financial crisis forces cuts in hours worked more are dipping into their super to save their homes.



Super fund trustees are reporting an amazing rise in the number of people drawing on their compulsory retirement funds as rates soar. Some of these people had previously used the redraw facilities on their mortgages to consolidate other debts. This includes combining credit cards with mortgages, and this has put many homes in jeopardy.



Debt consolidation is where one loan is set up to replace the multitude of other loans and the package is sold as having lower monthly repayments.



Sometimes when people are convinced to combine their debts they are not fully informed about all the costs involved in refinancing and the fact that these fees can be added to the loans. This adds interest and extends the loan term.



At the moment, secured debt such as mortgages have interest rates about half the rate of unsecured debt. This means that if you can borrow about $20,000 on your mortgage instead of your credit card your total interest payments could reduce. This is because your credit card will have a higher interest rate.



There is no problem with such a loan if you actually then trim your spending to allow you to make payments. But most people who get into this situation fail to learn from their past spending mistakes. Some people will see that their credit card has been repaid and will simply go out and run up more debt.



Data from the Reserve Bank of Australia shows that in the past 18 years the total amount of debt owed by Australian households has risen almost six-fold. The Consumer Credit Legal Centre says spending on credit cards is more a psychological issue than a financial one. The same goes for redraw facilities.



Good mortgage brokers will not recommend that you borrow too much money. They know that no-one wins if you adopt "the new black" and go bankrupt. Drawing money out of your retirement fund will mean that you will have less money for your retirement years. If your super is still intact, the employer contribution is generally protected from creditors if you go bankrupt.



Work closely with your mortgage broker to ensure you don’t borrow more than you can afford to repay. You are responsible for the final decision on how much to borrow. Be honest about your spending patterns with your mortgage broker - he or she is there to help you.



Your local firm of Mortgage Brokers are standing by to help you with your next home loan at http://www.moneynet.com.au/. Contact us today. http://www.moneynet.com.au/