Consolidating debts means putting all your outstanding loans into one loan.
Is debt consolidation cheaper?
Mortgages are among the cheapest forms of credit available because the loan is secured on your home. If you roll all your credit card debt and personal loans, which have higher interest rates, into your mortgage, you will be able to pay off these loans at a much lower interest rate.
However, if you extend a five-year personal loan over 20 years, you will end up paying more overall even if the rate is lower.
Use our mortgage and loan calculators to check out the total cost of credit, so you can check which is the best option for you.
What term should I look for?
The term of your loan should match the lifetime of what you are buying. So for example, if you are using your mortgage to pay for short-term spending, such as changing your car, you should make sure that you repay the car loan part of the mortgage over a shorter term. A typical car loan is repaid over three to five years, whereas the mortgage term could be 20 years. If you pay for the car over 20 years, it will cost you far more in interest and you’ll be paying for it long after you have gotten rid of the car.
Some lenders offer flexible repayment arrangements so that the personal loan portion of the new consolidated loan can be paid off within the original term, but at the lower rate of interest.
Under the Central Banks Consumer Protection Code your lender must give you, in writing, an indication of costs of your existing loans compared with the cost of the new mortgage you are considering.
Original mortgage and personal loan plan
|Loan details||Amount owing||Remaining term||Typical APRC||Monthly payments||Cost of credit|
|Existing mortgage||€100,000||20 years||4.1||€607||€45,750|
|Home improvement loan||€30,000||7 years||7.9||€462||€8,811|
|Car loan||€18,000||5 years||8.5||€367||€3,995|
|Personal loan||€10,000||5 years||10.1||€211||€2,648|
New consolidated loan plan
|Amount owing||Remaining term||Typical APRC||Monthly payments||Cost of credit|
|New mortgage||€158,000||20 years||4.1||€959||€72,286|
Extra cost of a consolidated loan over 20 years: €11,082 (€72,286 less €61,204)
Despite the lower APRC and lower monthly repayments, in the long run the new loan plan would cost you €11,082 (over 20 years) more than the original plan. This is because you are now paying for the old loans over 20 years, instead of the shorter original loan terms.
Where can you apply for consolidated loans?
You can apply with your existing mortgage lender. Or you could decide to switch to another lender offering a cheaper mortgage rate, and take out a larger mortgage to cover the extra borrowing. Be aware that many lenders do not offer these types of mortgages at present.
How flexible is it to consolidate your loans with your mortgage?
It is quite flexible as long as you have a variable rate mortgage. If your lender will allow you to pay off your smaller loans over the shorter term than your original mortgage, it is even more flexible. A variable rate mortgage means you can pay more when you can and pay lump sums to reduce interest and clear your debt earlier than planned.
If you have a fixed rate mortgage, you usually cannot pay lump sums off your mortgage or clear your mortgage during the fixed rate period. However, a fixed rate will give you certainty that your repayments will not go up during the fixed rate period.
But you need to consider all the costs.
Fees and charges you may not have thought about
There are fees you may have to pay if you decide to consolidate your loans with your mortgage.
|Fee||Reason for charge|
|Valuation fee||This is a fee paid to a professional valuer to estimate the market value of your home. Some lenders may offer to pay for this.|
|Legal fees and outlay||
This is the fee and other costs your solicitor charges for the legal work involved in changing the original
mortgage deed. Some lenders may offer to pay some or all of your legal fees, so check this before you apply.
|Mortgage protection insurance||This is a life insurance policy that will pay off your mortgage if you die during the term. You need to increase the amount of cover if you consolidate your loans with your mortgage.|
In accordance with the provisions of the Consumer Credit Act 1995, the following are for your attention:
Warning: Your home is at risk if you do not keep up payments on a mortgage or any other loan secured on it. The payment rates on this housing loan may be adjusted by the lender from time to time.
Note: The above notice in respect of adjustments to repayment rates will not apply during any period when the loan is at a fixed rate.
In accordance with the provision of the Consumer Protection Code (CPC) 2012 the following are for your attention:
Warning: If you do not keep up your repayments you may lose your home.
Warning: If you do not meet the repayments on your loan, your account will go into arrears. This may affect your credit rating which may limit your ability to access credit in the future.
The following warning applies in the case of variable rate loans:
Warning: The cost of your monthly repayments may increase.
The following warning applies in the case of fixed rate loans:
Warning: You may have to pay charges if you pay off a fixed rate loan early.
The following warning applies in the case of debt consolidation loans:
Warning: This new loan may take longer to pay off than your previous loan. This means that you may pay more than if you paid over a shorter term