Debt Consolidation Remortgage
Struggling with debt can be an emotionally and financially exhausting experience.
One potential solution is to consider a debt consolidation remortgage – a process where you move debts such as cards and personal loans into your main mortgage, reducing payments and freeing up cash.
If you’re overwhelmed with expensive debt repayments, you may be looking for a way to consolidate your debts and get back on track.
But what exactly is debt consolidation?
In this guide, we’ll explain what debt consolidation is and how a remortgage can help you to pay off your debts and reduce your monthly payments.
We’ll also share some tips on choosing the right debt consolidation plan for your needs. So if you’re ready to learn more about consolidating your debts, read on!
What is debt consolidation?
Debt consolidation is a financial strategy that involves taking out one large loan to pay off multiple smaller debts.
This allows you to merge all existing debts into one loan, thus simplifying the repayment process by having a single monthly amount to deal with.
It can also include rolling in additional outstanding bills such as credit cards, store cards and overdrafts, making it possible for households to manage their debt more easily.
Generally speaking, debt consolidation works best for those who have multiple sources of high-interest debts and require a longer loan term in order to make repayments more affordable.
The key benefit of this type of debt consolidation is that it often comes with lower interest rates.
How does remortgaging help?
Remortgaging involves transferring your mortgage over to a new lender. This happens all the time and it enables borrowers to swap to a better interest rate deal.
But remortgaging for debt consolidation is a bit different.
You will use a capital raising mortgage to borrow more than you have now, accessing the equity in your property.
This extra money will be used to pay off the more expensive debts, and normally means that your new monthly payments are a lot lower than before.
If your situation requires even lower payments, so that it is more affordable, then it may be possible to change your repayment mortgage to interest only or perhaps extend the mortgage term. This should only be done after taking independent advice on the consequences.
A remortgage could pay off:
Credit cards
Store cards
Personal loans
Overdraft
Car finance
Payday loan
Sounds great, what’s the catch?
Remortgaging to pay off all of your more expensive unsecured debts will almost certainly save you money each month, and make things more manageable.
But it’s important to remember that the debt is still there, except now it has been combined into your main mortgage.
Unlike a credit card, or store card, a debt consolidation mortgage allows you to pay back all of the debts monthly, but over a longer period of time.
This makes the monthly cost a lot less than it was.
But it does mean you will pay more interest, as you will take longer to pay it back.
If you are thinking of consolidating existing borrowing you should be aware that you may be extending the term of the debt and increasing the total amount you repay.
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
How much can I borrow?
A debt consolidation mortgage works by accessing the equity in your property. But you can’t borrow it all.
There are a number of lenders who could offer up to 90% loan to value, less the amount already owing on your mortgage.
But as with all mortgages, the amount you can borrow ultimately depends on your affordability.
Remortgage Guide
Our Guide covers the remortgage process, including how long it takes, and the different options you have when switching your mortgage.
Mortgage Repayment Calculator
Our mortgage repayment calculator gives you a good idea of what your monthly mortgage payments might be.
I don’t have a mortgage
Your property is unencumbered if you own it outright, without a mortgage.
A debt consolidation re-mortgage could still be a viable option for you, and there’s likely to be a number of lenders to pick from as long as you keep the loan to value low.
How much will a bigger mortgage cost?
When most people consolidate debt their main aim is to relieve the financial pressure on their finances and make the overall monthly debt repayments more affordable.
The new mortgage will be larger than the one it replaces.
It’s really important to know how much a new mortgage will cost, before you apply for it.
Each mortgage repayment will vary according to:
- The mortgage amount
- The mortgage term
- The interest rate
- The repayment method
Here’s a few simple examples based on a repayment mortgage over 25 years and an interest rate of 4%:
A £250,000 mortgage would cost £1319 per month
A £350,000 mortgage would cost £1847 per month
A £500,000 mortgage would cost £2639 per month
A £750,000 mortgage would cost £3958 per month
For a more accurate figure you can use our free mortgage repayment calculator, which allows you to input the exact mortgage amount and interest rate.
Remortgaging when your house value has increased
When your house price goes up you have more equity. A capital raising remortgage can help you to access this money.
Should you get a debt consolidation mortgage?
That decision will be up to you but there are some pros and cons to look at.
Simplify your repayments – By moving multiple debts to your mortgage you will only have one monthly repayment to worry about.
Utilise your home’s value – If your debt situation is unmanageable then accessing your equity to reduce the burden can make sense.
Lower your outgoings – One main advantage of a debt consolidation mortgage is that the monthly payment is quite a bit lower than all of the previous payments added together.
You pay more interest – Although the re-mortgage interest rate will be cheaper than the personal loans and credit cards it replaces, you are likely to be charged more in interest. This is because the debt is spread out over a longer period of time.
It reduces your equity – This may mean that it is harder for you to move home in the future.
You will put your home at risk – If you fail to maintain the new mortgage repayments then the lender could try to repossess your home to settle the debts.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
How a mortgage broker can help
It’s extremely common for people to get into debt, but with help from the right adviser you can clear all of your short term debts and get your finances back on track.
A mortgage broker will be able to find you the best remortgage deal from the right lender. Not all lenders will accept applications that involve debt consolidation, and those that do often have certain restrictions.
Your broker will be able to quickly assess your situation and work out your debt to income (DTI) ratio, which all lenders will use.
Respect Mortgages works with an award winning independent broker who can provide you with expert advice wherever you live in the UK.
As well as arranging a great mortgage for you, they can provide advice and guidance regarding your debts, and explain the options you have when remortgaging.
They will also assist you in applying for a new mortgage and help with any issues that crop up along the way.
Get in touch with us today.
FREQUENTLY ASKED QUESTIONS
Can you remortgage with bad credit?
There are options available if you need to remortgage but have bad credit due to missed payments or CCJ. Depending on the type of credit problem, it may be necessary to approach a bad credit mortgage lender.
I don’t have a mortgage, can you still help?
Yes, and as you own your home outright you are in a very strong position. Can you remortgage a house without a mortgage?
How long does it take?
Timescales do vary between lenders but on average it will take 4-6 weeks from application.
Do you need a solicitor to remortgage?
A solicitor is needed, but you won’t normally need to employ your own. This article explains it further.
Is debt consolidation possible with a buy to let mortgage?
Yes, capital raising is allowed for a buy to let remortgage, and this will allow you to pay off other unsecured debts.
Will the broker charge a fee?
Yes, the broker we work with does charge a fee for helping you and providing the advice. This will be fully explained to you.
Further support
Debt can be extremely stressful, so it’s worth seeking advice and support if you need someone to talk to.
Some organisations that can help with debts include:
