Owning your first home may be a dream come true, but it is a reality that you will miss repayments due to unavoidable circumstances, and may have to refinance to deal with the burden of debt.
The Australian Securities and Investments Commission (ASIC) cites some circumstances to avoid so that you do not fall into the refinancing trap and avoid repossession of your beloved home as much as possible.
For starters, ASIC advises: “Avoid refinancers who make unrealistic promises about getting you out of debt or who advertise that they can help you, no matter how much you owe. Debt consolidation can get you even deeper into debt by letting you borrow more money. For example, if you transfer your credit card balances onto your home loan, you might be tempted to put new debt onto your credit cards.”
Further, the agency emphasized that debt consolidation should not increase your level of debt because it will only make your financial problems worse.
You should also beware of “equity stripping,” where shady brokers and lenders take advantage of people who are desperate to save their home by charging high fees, which could amount to more than 20% of the equity in their home, and arranging unrealistic refinancing agreements.
“Equity stripping can be very lucrative for brokers and lenders, as they can make big profits at minimal risk. Some lenders have been known to charge borrowers 50% interest or more, and higher rates if they default on the loan,” ASIC warned.
For more details, please visit https://www.moneysmart.gov.au/managing-your-money/managing-debts/consolidating-and-refinancing-debts
Collections: Mortgage News