WHY YOU SHOULDN'T ALWAYS 'PUT IT ON THE HOME LOAN'

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You need to borrow some money, perhaps you need to replace a car, purchase new technology, update furnishings or just want a few extra funds for that trip you’ve been planning.

Naturally when we want to borrow, we want to pay the least for that money as possible i.e. look for a low interest rate option. For those of us who have home loans (and equity available) then borrowing against our home seems the most logical option. However, there are instances when even with the lower interest rate, than say a personal loan, you’ll actually end up paying more overall.

Here are a couple of things to consider before you jump in and just put it on your home.

ARE YOU DISCIPLINED WITH YOUR REPAYMENTS?

For many of us our home loans have 10,20 or even 25 year term. If you’re wanting to borrow $15k for a particular project & just add it onto your home loan as is, you can actually find yourself paying more in interest for that $15k, then if you were borrowing at a higher rate for a shorter time.

BORROWING

INTEREST RATE

TERM

INTEREST COST

TOTAL REPAID

$15,000 (home loan)

3.5%

15 Years

$4,320

$19,320

$15,000 (personal loan)

9.95%

1.5 Years

$1,209

$16,209

 

So as always, it’s vital to do your figures before jumping into any additional lending. Consider, what can you afford to pay extra each month? How it fits your budget & how long you’ll be taking to repay the loan.

HOW QUICKLY DO YOU NEED THE FUNDS?

Processing times on home loan approvals are generally a lot longer than approvals for personal/consumer/general loans.  Companies like Prosper who offer finance for business, & Select Asset Finance who provide loans for cars, boats, weddings, holidays, debt consolidation (& much more)  Will often approve a loan in as little as 24 hours. Whereas it's not uncommon for home loan approvals via banks to take a number of weeks to come through.

Is the effort proportional to the reward?

Banks are notorious for needing a lot of supporting information before approving & then drawing down loans. Completing an in-depth statement of position, providing written confirmation of your income or copies of your business accounts are just a few things they may ask for.

Yes, you may potentially save a few hundred dollars in interest costs, but how much of your time, effort, & cost has it taken to get all the information together? Running around contacting Human resources, getting projections from your accountant etc.

  

These are just three things to consider when you’re thinking about ‘putting it on the home loan’ If you’re after some expert advice as to what will work best in your personal situation, don’t hesitate to reach out to the Focus Team on Ph 0800 334 338 or send us a message HERE

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