Refinancing debt may seem like a simple way to get out of debt, and for people with equity in their assets it can be very effective & simple to do. However, there are several issues you need to consider before refinancing your assets.
What is refinancing?
Refinancing involves cancelling your current home loan agreement (usually a home loan), and entering into a new home loan agreement with your current lender or a different lender.  Before the lender will allow you to refinance your debts (i.e. increase the level of your loan) they will re-assess your income & expenses to make sure you have the ability to repay the loan.  Depending on the amount of equity in the property (i.e. the difference between the value of your house and the amount you owe on it) your lender may require a fresh valuation to be done.  Most lenders also have a loan to valuation limit.  What this means is that the loan value cannot be more than a certain percentage of the value of the property (for example the loan cannot exceed say 80% of the value of the property).  Every lender has different lending criteria, so you will need to make enquiries with your lender to see if you qualify for a refinance.
What are the benefits of refinancing?
If you qualify for a refinance, the benefits can be enormous.  The main benefit is that the interest charged on most home loans is significantly less than the interest charged on unsecured debts (like credit cards or store cards).
Refinancing your unsecured debts, will also reduce the number of repayments you need to manage every month. In other words, it is much easier to manage a single payment to one lender, rather than keep track of several payments to different lenders (usually with each having different payment dates).
What are the disadvantages of refinancing?
When you refinance and pay out your unsecured debts, you need to make sure that you close your old accounts.  If you refinance and pay out your unsecured debts, but continue to use the credit accounts for purchases, your overall debt level will obviously increase, which will worsen your situation.
Immediately after you refinance your debts, make sure you cut up your credit cards and replace them with a debit card.
If you need advice on refinancing your debts, call your current lender first.  If your refinance application is refused, then give us a call on 1800 462 767 and we can discuss your alternatives.