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debt Debt Consolidation - Beware of Possible Pitfalls

Debt Consolidation is certainly the best method to follow when trying to reduce your debt and having only one repayment at the end of the month.

When considering doing debt consolidation by increasing your current bond you have to look out for a few potential pitfalls like, an increase in the interest and an increase in the bond term.

Debt Consolidation Pitfalls - Iincrease in the interest rate

Yes, nowadays banks aren’t giving the generous discounts they were giving a year ago, but you can certainly still get a discount of up to 2% below prime, depending on your credit profile, financial stability and account conduct.

In many cases however, even with a detailed motivation from a mortgage originator, the banks will increase a clients interest rate with the onset of a bond application for an increase in the bond amount.

In most cases, if you use the services of an experienced mortgage originator, you should be able to get a better interest rate discount, or worst case, the same discount you currently have.

Be sure to compare the old and new rate once you get your mortgage approval.

Debt Consolidation - Iincrease in the bond term.

When using an experience and reputable mortgage originator, he or she will tell you that you have the choice of the entire bond being rescheduled or refinanced to the original term of 20 years or 30 years to further reduce the payment, or that you can keep it at the current term left on the bond.

What this means is that if you have already paid off for 5 years of your 20 year bond, you have 15 years or 180 months left to pay. When applying, the bank will automatically refinance the entire bond back to 20 years and you start paying from the beginning again unless you inform them that you want to keep it at the current term.

Refinancing it will certainly reduce your monthly repayments, which can help your cash flow over the short term, but be aware that you will be paying more in interest at the end of the day.

For more information on debt consolidation or refinancing, contact us on 086 110 6204 or apply online.


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