Remortgaging to Consolidate Debts

Remortgaging to Consolidate Debts

If you have owned your home for a while, it is likely that you have built up a fair amount of equity. Equity refers to the current market value of your property minus any debts you have secured against it, such as your outstanding mortgage balance.

Remortgaging a home to consolidate debts involves taking out a new mortgage on your property, often at a better interest rate or with different terms than your existing mortgage, and using the additional funds to pay off other debts.
This strategy can potentially lower monthly payments and simplify finances by combining multiple debts into a single monthly payment.

However, it’s essential to consider the costs and risks associated with remortgaging, such as fees, potentially higher long-term interest costs, and the risk of losing your home if you can’t keep up with repayments.

What is Debt Consolidation?

Debt consolidation is a financial strategy that involves combining multiple debts, such as credit card balances, personal loans, or other types of debt, into a single loan or line of credit. By consolidating these debts, you can simplify your finances by making just one monthly payment rather than managing multiple payments with varying due dates and interest rates.

The primary goals of debt consolidation are to:

• Simplify Payments: Instead of juggling multiple payments to different creditors, you make a single payment each month, which can make budgeting and financial management easier.

• Lower Monthly Payments: By extending the repayment term or securing a lower interest rate through consolidation, you may reduce your monthly payment amount, making it more affordable.

• Reduce Interest Rates: If you can secure a lower interest rate through consolidation, you could save money on interest over time, especially if you have high-interest debts.

While debt consolidation can offer benefits such as simplicity and potentially lower monthly payments, it’s crucial to weigh the pros and cons. For instance, extending the repayment period could mean paying more in total interest over the life of the loan.

Additionally, to make debt consolidation effective, it’s essential to avoid accumulating new debts and maintain consistent payments on the consolidated loan or credit line.

Can remortgaging to consolidate debts lower my monthly payments?

A debt consolidation remortgage can potentially reduce your monthly payments by spreading out your existing debts over an extended period. By consolidating multiple debts into a single loan with a longer term, you may be able to achieve a more manageable monthly payment amount.

However, it’s crucial to consider several factors:

Extended Loan Term: While your monthly payments may decrease, extending the repayment period means you’ll be paying off the debt over a more extended period. As a result, you could end up paying more in total interest over the life of the loan.

Accumulated Interest: With a longer repayment period, you’ll accrue interest over an extended duration, potentially increasing the total amount you repay over time.

Overall Cost: Evaluate the total cost of the loan, including interest and any associated fees. Lower monthly payments may seem attractive, but consider the long-term financial implications and the total amount you’ll repay.

Secured vs. Unsecured Debt: If you’re considering releasing equity from your home for debt consolidation, remember that you’re converting unsecured debts into secured debt against your property. Ensure you can meet the repayment obligations to avoid risking your home.

Consulting with experienced professionals can help you assess the potential benefits and drawbacks of a debt consolidation remortgage tailored to your specific financial situation. By analysing your options carefully, you can make an informed decision that aligns with your goals and financial objectives.

What kind of debts can I consolidate with a remortgage?

A mortgage can be used to consolidate a range of different unsecured debts including credit cards, personal loans and overdrafts.

Can I remortgage to consolidate debts if I already have bad credit?

Obtaining a remortgage to consolidate debts is possible even if you’ve previously had bad credit. Lenders may view you as higher risk however and therefore the rates and mortgage deals you have access to may be less favourable.

Like with and remortgage, you need to meet lender affordability criteria and possess equity in your property. Using a mortgage broker may increase your chances as they may have access to more specialist lenders if required or can support you in taking steps to enhance your creditworthiness before submitting an application.

How do I know if I’m eligible for a debt consolidation remortgage?

If you’re a homeowner with an existing mortgage and are contemplating remortgaging to include extra funds for debt consolidation, your ability to do so largely hinges on the specific lender’s criteria and the equity you’ve built up in your property.

Lenders will generally assess your eligibilty based on the following:

• Equity in your home: Lenders will assess the equity in your property by comparing the outstanding mortgage amount against the current market value of your home.

• Affordability Assessment: Lenders conduct an affordability review to ensure you can manage the increased mortgage amount resulting from additional borrowing.

• Income and Expenditure: Your income and outgoings play a crucial role in the lender’s assessment process.

• Credit History: Lenders scrutinise your credit history, existing debts, and financial conduct to gauge risk and suitability for additional borrowing.

It’s essential to be aware that specific terms and conditions may apply. For instance, your existing mortgage agreement might not permit additional borrowing, and you could incur early repayment charges if you terminate your current mortgage deal prematurely.

How do I apply for a debt consolidation remortgage?

Talk to one of our experts here at The Mortgage Masters. There’s no need to feel embarrassed or ashamed; many people encounter debt at some point in their lives. Debt consolidation can be an effective way of lowering your monthly outgoings.

When guided by a knowledgeable broker who educates and advises you appropriately, debt consolidation can be a wise financial strategy.

Get in touch with our expert team for a no judgement conversation to see if debt consolidation is the most appropriate option for you.