Remortgage for Debt Consolidation
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Remortgage for Debt Consolidation - how does it work?
If you have a few debts to pay off, it can be tempting to add them onto your mortgage so that you only have to worry about one monthly payment. Do seek advice, though, as there are some risks to remortgaging for debt consolidation.
What is a Debt Consolidation remortgage?
A debt consolidation remortgage is where you take out a new mortgage deal with a lender and extend your borrowing in order to repay other debts.
There are various reasons why you might choose to remortgage, and debt consolidation is just one of them. People also remortgage to fund home improvements and to release equity.
How does it work?
To extend your mortgage loan you will need a certain amount of equity in your house – that is, your home is worth more than the mortgage left on it. Remortgaging involves applying for a new mortgage with a new lender. You will need to meet certain criteria, including affordability.
Consolidating your debts involves borrowing more than is outstanding on your current mortgage. You repay your existing mortgage deal with the new product, and use the lump sum left over to pay your debts.
Your mortgage payments will probably increase a little to account for the additional borrowing unless you have found a mortgage at a lower interest rate.
Who is able to remortgage?
You will be able to remortgage as long as you have a certain level of equity in your home. Lenders always look at the Loan to Value of a mortgage – that is, how much you are borrowing against the total value of your home.
Most lenders limit borrowing to 90% Loan to Value (LTV), so you will need to work out what the LTV will be once you allow for the debts you need to repay. If you are comfortably within the 90%, that will be a good start.
You will also need to meet the mortgage lender’s criteria, which look at whether you can afford the monthly repayments, your credit rating, the way your property is constructed and various other factors.
What are the disadvantages of remortgaging for debt consolidation?
The big disadvantage of remortgaging to clear your debts is it may cost you more in the long term. A debt that could be repaid within 12 months could instead be spread over 25 years, incurring interest all the time.
Another important thing to bear in mind is that your mortgage is a secured loan – it’s linked to your property. Unlike a personal loan or a credit card, if you fall behind with your mortgage payments, you could lose your home. That’s why it’s so important to seek advice to make sure you are choosing a suitable approach. Talk to a mortgage broker before making a decision.
Finally, there’s a risk that if you have fallen into debt, you may have bad credit, which will limit your chances of borrowing more on a mortgage. Don’t apply for a mortgage deal without advice in this situation, as it could actually make your credit position worse.
How can a mortgage broker help?
It’s our job to look at all the details of your situation, talk about your goals and recommend the most appropriate solution.
With a debt consolidation mortgage, we’ll do all the calculations to show you how much it will cost you to consolidate your debts, compared with the cost of repaying them in the normal way. We will include all fees and costs so that you can make an informed decision.
We will seek out the most affordable remortgage deals to suit you from a panel of dozens of lenders and hundreds of mortgage products.
For more on how we can help you explore debt consolidation mortgages, contact us today.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS. SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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