Experts have warned that while it is tempting to try and consolidate all of your debts into your home home loan, homeowners should try to err on the side of caution when doing so.
The current economic environment has not been easy for South Africans to negotiate, and it is estimated that some household debts are in the region of 75 percent. However, the Chief Executive at BetterLife Home Loans Shaun Rademeyer said the decision making process was not straight forward, by any stretch of the imagination.
He warns that it is a decision that should never be taken lightly.
“We have seen an increase recently in applications for what the banks call ‘further advances’ – which is when the home owner re-borrows all or part of the amount he has already paid off his home loan to finance something else,” Rademeyer told SABreaking News.
“Usually the motivation to do this is to pay for additions and alternations, or pay for a child’s tertiary education, but currently the strongest reason being given for further advances is to use the money to pay off other debts and consolidate all borrowings into the home loan account, at a relatively low rate of interest compared to a credit card balance, for example, or car finance,” added Rademeyer.
He explained that risks involved in adopting this route were too high, adding that homeowners stand to loose too much.
“If you default on other debts it can result in your car being repossessed, or a judgment being taken against you, which is bad enough. But if you are unable to make the repayments on your enlarged home loan, you could lose your home,” said Rademeyer.
“Another problem we see is when people who take out further advances for debt consolidation continue to overspend, and before long find themselves in deeper credit trouble than before. Now they have a bigger home loan plus a new credit card balance to pay off.”