22nd Jul 2008

Debt Consolidation – frequently asked questions

debt consolidation australia

What is debt consolidation?
Debt consolidation is a popular term in the mortgage market and what it involves is taking out one loan to pay off a number of other loans (or debt). This is normally done to access a lower rate of interest, secure a fixed rate of interest, or for the convenience of paying back only one loan rather than a number of loans (consolidated debt).

Debt consolidation most often it involves a secured loan against an asset that serves as collateral, which is most commonly a house (for example a mortgage which is secured against a house.) The collateral allows you to have a loan with a lower interest rate than without it. This is because in the case where the loan repayments cannot be made the owner of the asset agrees to allow the forced sale (or foreclosure) of the asset in order to pay off the loan. This reduces the risk to the lender so the interest rate offered is lower.

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