I’m seeing a lot of people lately who are in “mortgage stress” and in my opinion, the main reason for this is something we call “auxiliary debt”. Auxiliary debt is caused by credit cards or car loans that you may have been talked into and is putting people under so much financial stress that they worry if they can make their mortgage repayments! Does this sound familiar?
This is especially prevalent in the public service where external finance organisations come in and offer novated leases and salary packaging to the department’s employees. Commonly, your lease repayments are made from the your pre-tax income (which gives you a tax benefit - but one you still can’t afford) and what’s more, it gives you a false sense of security that you're in a stable financial position. Thinking that you are making tax savings can blindside you and give you a false sense of reality when it comes to your finances.
Just the other week I had someone come in who works in the public service saying how they couldn’t meet their mortgage repayments. After discussing their finances, we discovered one of the biggest reasons for this was that they had been lured into a novated lease with an external finance company their government department had arranged for them. After being hoodwinked by a glossy dossier of fancy cars and convincing them they can afford a new vehicle “by paying only $50 per week post tax” the client had signed up for more than they’d bargained for. The fact is, these external finance companies don’t look at your whole situation. They don’t take into consideration all the other expenses, or debt, you may have. All they care about is getting your money and the way they guarantee this is by deducting the repayments pre tax. Yeah, this may have some marginal tax benefits, but it is significantly outweighed by the additional debt you have just taken on. It can also lull you into a false sense of security thinking you have more disposable income than you actually do.
But it’s not all doom and gloom.
There are a number of ways that you can consolidate your multiple existing debts. An option for you to consider is consolidating your debt by refinancing your home loan.
Consolidating debt by refinancing your home loan has multiple benefits, depending on your circumstances. Some reasons that you may look to do this include:
It could help you manage a range of other short-term debt solutions that usually attract a higher interest rate (and will give you a stronger cash flow)
The ease of managing a single mortgage gives you a regular repayment amount
Before you decide that refinancing your home loan is the best way for you to consolidate your debts, you need to consider a number of costs that could arise during this process.
Depending on your personal situation, refinancing can attract a range of fees and other charges, including:
Lender fees – This includes exit fees for your existing loan, establishment fees for your new loan and any other applicable lender fees and charges. However, a good mortgage broker should be able to get most of these waived for you.
Duties, taxes and other government levies could also be incurred.
You should factor in all of these costs when calculating whether refinancing works for you and this is something that I or your mortgage broker can do for you.
Why not book a free meeting with a Tiffen & Co mortgage broker and let us assist you in working towards consolidating your debt and reducing your mortgage stress. Call the office on 02 6260 7880 today.
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Gerard Tiffen is a multi award winning broker and has been a permanent fixture in the Top 10 Brokers in Australia for the past 11 years.
As Managing Director of Tiffen & Co, Gerard specialises in sourcing and structuring a wide range of home and investment finance packages for his clients.
Gerard has always been interested in property and is an avid property investor himself – over the past 15 years Gerard has amassed a property portfolio in excess of $10,000,000. His willingness to share his personal and professional expertise with his clients is unsurpassed. He understands that structuring finances correctly from the outset will ultimately save time and money, as well as make it easier to diversify your investment portfolio in the future.