A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. You may have to pay an early repayment charge to your existing lender when you remortgage. Think carefully before securing other debts against your home.
Consolidating your debt can be a great way to get your finances back on track. By consolidating all of your outstanding debts into one manageable monthly payment, you would want to reduce your monthly repayments, avoid late payment charges and ideally also protect yourself from providers increasing your interest rates further on your credit cards or other unsecured debt . Essentially, you’re aiming to reduce the financial pressure of monthly expenses on your family budget.
As the property market is strong, and you are likely to have accumulated some good equity in your property, you may be able to take advantage of this and take some equity out of your property that you can use to pay off your other debts.
Please remember that a mortgage is a loan secured against your home. Your home may be repossessed if you do not maintain repayments on your mortgage or any other load secured against it. You may have to pay an early repayment charge to your existing lender when you remortgage. Think carefully before securing other debts against your home. And it is always a good idea to speak with an experienced mortgage broker who can talk you through the process, and understand the options and what they will mean for you.
The following are several advantages of remortgaging in order to consolidate debts:
How can I use my mortgage to pay off other debts?
If you’d like to access the equity in your home, try applying for a remortgage. Once you successfully complete your application and pass all of the necessary financial checks, any equity you have acquired in your property will be released back to you up to a certain Loan to Value ratio (LTV). You can then use this extra cash to pay off any outstanding debts. After that, you will have a bigger mortgage that will include the other debt balances you want to pay off. The new mortgage rate will need to be lower than the rate paid on the other debt, and generally this is the case; as rates on credit cards can be significantly high these days when compared to mortgage rate. Please also remember that new monthly mortgage payments will last for the duration of the mortgage term, however long the mortgage will be. You can use our free mortgage repayment calculator to calculate your monthly repayment amount to determine how much you can comfortably afford.
How can I apply to remortgage my property?
To begin, you will have to do a bit of research. You might want to find a remortgage broker, like Your Mortgage Experts, or get guidance from somebody who knows the ropes before making the decision to remortgage. What this means is that you would be refinancing your entire mortgage deal with your existing lender. As you remortgage, you would want to acquire extra borrowing on the mortgage, and release this additional borrowing so that it can be used to pay off things like credit card debt, personal loans and any other more expensive debt. If you remortgage before your current mortgage deal expires, be aware that there may be early repayment charges. Also, you’ll need to show your lender that you can afford the new payments and have a plan for how you’ll spend the extra money that you may receive.
How do I qualify for a remortgage to consolidate my debt?
The following are questions you may want to answer before remortgaging, which will aid in the decision-making process.
How much equity do you have in your property?
If your home has not increased in value, it may be difficult to remortgage and raise the additional funds; or it may require a higher interest rate to borrow more against your property. Generally speaking, it is more difficult to remortgage and raise additional funds if the Loan-to-Value ratio is already above 80%. However, please bear in mind that lenders’ underwriting criteria change regularly, also depending on how the economy is performing and on the state of the property market. An experienced mortgage adviser can help you navigate the available options.
Is your current mortgage deal keeping you locked in?
If you have an existing mortgage, you may not be able to take out another one until your initial deal period ends, otherwise your current lender may charge you hefty exit fee. You will want to check this and then plan accordingly.
Are there any more costs involved?
This is just like any other mortgage application where things like solicitor’s fees, lender’s arrangement fees and broker fees. But, if you remain with your current lender instead of switching, you might be able to save some money on admin charges.
How to get help?
Debt consolidation is a specialist area. Your current mortgage lender may not allow you to do it. And you may need to widen your search. Speak to a remortgage expert who can work on a plan for you and discuss what options may be available, as well as work out any savings in monthly payment and the long term benefits and implications.
Does debt consolidation make financial sense?
A lot of whether or not remortgaging is the right choice for you rests on your personal circumstances. How much debt you have, how much you want to borrow, and over what length of time all play a factor in this decision. However, one major risk to be aware of is that after working so hard to pay off debts, it can be tempting to return back to old spending habits. Credit cards are usually easy ways to get money but they also come with high monthly costs if not used wisely. Consolidating your debts through remortgaging could help reduce those monthly expenses. For example, monthly payments on a credit card totaling £25,000 with an interest rate of 15% over two years will be approximately £7500 in credit card interest alone. Mortgage interest rates tends to be much lower and therefore, this option makes it much more manageable financially each month. However, please remember that a mortgage can be for a very long period of time, such as 20-30 years, and this means you may continue to pay interest for a longer time, albeit typically on a reducing repayment balance.
Will all lenders provide remortgages for debt consolidation?
Not every mortgage lender will consider debt consolidation and as with any other type of mortgage, lenders will need to carry out basic credit scoring checks, as well as a full underwriting assessment and a valuation of the property. If everything is in good order, they would allow equity to be released for debt consolidation.
What are the benefits of remortgaging?
There are lots of benefits to remortgaging and consolidating debts is just one of the reasons why people may consider remortgage in this current environment of increasing interest rates. Therefore, the opportunity is there to take advantage of mortgage rates that are lower than the more expensive credit card debt, in order to get back on track financially.
How can Your Mortgage Experts help?
At Your Mortgage Experts, our friendly and knowledgeable advisors will work with you to find the best remortgage deal possible from across a selection of 90+ mortgage lenders and from a comprehensive selection of mortgage products, ranging from mainstream to specialist lending solutions. They will also let you know what preparation will be required to maximise your chance of success, what documents and information you’ll need. Once the application is submitted they will track it and manage it for you up to completion when you will be given the funds that you can use to pay off your other debt.
Contact us today on 0208 154 1111 and we are here to discuss how remortgaging to consolidate debts may help you.
How can I use my mortgage to consolidate other debts?
To utilise your mortgage for debt consolidation, apply for a remortgage. Once approved, the equity acquired in your property is released to you up to a certain Loan to Value ratio (LTV). This can then be used to clear other outstanding debts, leaving you with a single, larger mortgage, typically at a rate lower than other debt interest rates. Remember, this new mortgage payment will last for the mortgage term's entirety.
What are the key considerations before remortgaging to pay off debt?
Before remortgaging, consider the equity in your property. If your home hasn't appreciated or if the Loan-to-Value ratio is above 80%, it might be challenging to remortgage. Ensure your current mortgage doesn't lock you in or charge exit fees. Be aware of additional costs like solicitor’s fees, lender’s arrangement fees, and broker fees. It's advised to speak with a remortgage expert to understand the options and potential long-term implications.
Does every lender support remortgages for debt consolidation?
Not all mortgage lenders consider debt consolidation. Lenders typically perform basic credit scoring checks, a full underwriting assessment, and a property valuation. If these evaluations are satisfactory, they might allow equity release for debt consolidation. It's beneficial to consult with mortgage experts, like "Your Mortgage Experts", to understand the available options and find the best remortgage deals.
Luca BertolinoMortgage Expert
Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.