A Consolidation home loan is when a client refinances their existing home loan and at the same time combines some of their other debts. The debt consolidation could consist of the existing home loan, personal loan(s), credit card debt, bills (rates, school fees, etc) and also extra finance for future use (holiday, upgrade car, home improvements etc).

The reasoning behind consolidating the existing home loan is to use the equity in your property to qualify for a low interest rate loan, rather than be charged much higher interest rates and monthly payments on personal loans and credit cards. To attract new clients, many lenders keep their set up fees to a minimum and often are happy to take any costs involved with setting up the new loan at the settlement of the loan. This overcomes the problem that some people who are struggling to meet payments have in coming up with fees upfront to have a new loan with a lower repayment.

The desired outcome of a loan consolidation is to have only one debt; on a low interest rate home loan, with a lower minimum payment required. This gives people the opportunity to catch up their debts and adjust their spending habits to their new commitment.

This provides for financial peace of mind. Some people are too proud to seek a solution and wait until they fall into very serious arrears before asking for help. Apart from the stress involved in living from pay day to pay day, this can also cause a bad credit rating.

Once the consolidation loan is approved it is advised that clients consider canceling credit cards or at least reducing them to a minimum limit.