Wanting to Transfer a Debt with 4.66% Interest Rate into My Home-Loan with 4% Interest Rate. How Should I Approach?

King Steuart on 21/02/2017 - 14:07

Long story short I have about $70k left to pay on a loan, while I have my home loan sitting on interest only since day 1, 3 years ago.

My home has increased in value about (conservatively) $100k, so I would say I have at least $260k equity in my home loan now.

Would the bank allow me to transfer the $70k debt into my home loan? My father suggested telling them we need $70k for renovations and to set it up as a line of credit, but that's bending the truth a bit.

I'd like to gather as much financial advice as possible before approaching them.

Financial

Comments

  • tomclancy on 21/02/2017 - 14:34
    +1

    Approach your home loan bank and ask for your loan to be increased. They will do a desktop valuation of your home and ask for payslips etc which if all checks out then they will increase your home loan no problems & no fees.

    They will ask you what you are using the new funds for. It doesn't need to be anything exciting, tell them you just want extra buffer in case an opportunity or emergency arises in the future. The reason you give is not going to affect whether they grant the loan increase or not, but saying you will be doing renovations if you aren't is probably not a good idea because they can find something like that out. I would also avoid telling them it's to consolidate another loan.

    When the increased home loan settles the bank will deposit the extra cash into your savings (hopefully offset) account. Then contact the $70k loan provider in order to pay it off. I wouldn't try to do it in one step - i.e. get the $70k first, then pay off the $70k.

    • King Steuart on 21/02/2017 - 14:53

      Thanks, the phrase "extra buffer in case of emergency" is a good idea given I work in emergency services and they can see that from who deposits money in my account :)

      • tomclancy on 21/02/2017 - 14:54
        -1

        Haha - coincidence :)

  • Islund on 21/02/2017 - 15:22
    +1

    rather then ask for your loan to be increased ask for a separate loan (maintenance/renovations etc)at the same rate.

    That way you can enjoy the reduced rate and not have to pay the 70,000 debt across the life of the home loan.

    • Gunther on 21/02/2017 - 15:41
      +1

      That makes no sense to me.

  • Agarwal on 21/02/2017 - 15:25
    +1

    It would probably depend on your income though. If you don't tell the bank you're consolidating that other loan, then they will take the fact you're paying off a 70k loan elsewhere into their calculations in terms of being able to service the new amount. So it might be a good idea to be honest with them.

  • djkelly69 on 21/02/2017 - 21:20
    +1

    Not sure it is worth the hassle to be honest. That is a pretty good interest rate on the other loan. If you are going to do it, just say it is for debt consolidation (which it is). Not sure why people are over-complicating this.

    4.66% on $70k over say 5 years (assuming it is a car loan or similar) is a lot less interest than 4% on $70k over ~22 years. Maths is not that simple but gives some idea.

    Also if your home loan is interest only, does that mean it is for an investment property? If so, the interest on the $70k used for personal purposes will not be tax deductible.

    • King Steuart on 22/02/2017 - 06:06

      (Not my neg vote) thanks for your advice, but if it's all merged into one, then I'd technically be paying off that 70k first, so if you look at it that way, it would be paid off faster because lower interest..

      • dannyboiii on 14/03/2017 - 23:19

        Hi Putnum, it's always worth your time saving money if that is your intention. You just need to make sure you plan to repay the loan in a set amount of years i.e 1-5 years, otherwise if you prolong it you will eventually pay more interest. It all comes down to discipline :)

        A few things to factor in would be:
        1) fees and costs to consolidate your debt
        2) exit fees for paying out your loan early
        3) your ability to repay the loan, assuming you are working it shouldn't be a problem to service the loan
        4) if you can get a better rate than 4% which I'm sure you can bring in the industry myself assuming you have an owner occ debt

        All in all, definitely worth your time :)

  • King Steuart on 27/03/2017 - 11:34
    +2

    Got the approval today. I asked for $100k increase and got it. All 100% offset!

    NAB have been really good to us so far. They waived the application fee, and kept us on our decreased interest rate which they said was also an exception. Very satisfied.

    My next move is to wait another 6 months then ask for a .2% interest rate lowering

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