Remortgaging to Consolidate Debts

Debt consolidation is a smart way to get back on track with your finances. By compiling all of your outstanding debts into one manageable monthly payment will help you to keep up with repayments, avoid late payment charges and dodge increasing interest rates. Essentially, what you’re doing is aiming to reduce the financial pressure of monthly financial woes.

Remortgaging your property to pay off debts is not a new idea. It was a common feature in the last housing bubble. Now the market is back at a similar place, with rising house costs and lower mortgage rates, people have begun to take advantage of this to pay off their debts.

Here are some key points about how remortgaging to consolidate debts can help with your finances:

How do I use my mortgage to consolidate debts?

You will need to apply for a remortgage deal. If you’re unsure what remortgaging is, try reading this. Once you have successfully completed your application, and undergone all of the crucial financial checks, any equity in your property will be released on a Loan to Value rate. You can then use this spare cash to clear any unresolved debts and clean your slate. You will then be expected to make each monthly repayment of your new mortgage deal on whichever terms you agreed.  

How do I go about applying to remortgage my property?

Firstly, you will need to do some research. Perhaps, source a mortgage broker, like MortgageKey, or seek advice form a professional before choosing to remortgage. From here, a full remortgage would mean refinancing your entire mortgage deal with your existing or new lender. It could be as simple as moving to a different deal with the same size mortgage, or taking on extra borrowing and releasing some of the equity in your home by prolonging the mortgage. It’s worth noting that opting out of a mortgage deal before your current deal has expired may result in early repayments charges. Additionally, you will need to demonstrate to your lender that you can afford the repayment. They will also require a breakdown of how you intend on spending the money you secure.

What’s the criteria for remortgaging for debt consolidation?

It completely depends on each individual circumstance and their property, but here are some questions you may want to ask yourself before you begin the remortgaging process.

  • Do you have enough equity in your property?

It may be that your house has not risen in price and your Loan to Value (LTV) is already up and above 80% of your total property value, making it difficult or expensive to borrow more.

  • Does your current deal allow this?

Depending on the structure of your original mortgage deal, you may not be entitled to take out another mortgage until your term ends. At the very least you will have to pay some kind of early exit fee.

  • Are there any further cost involved?

Consider this like any other mortgage application in which solicitor’s fees, stamp duty and the likes are all deemed chargeable. However, if you stay with your current lender, you may be able to avoid some admin charges.

  • How much would it cost overall?

Get your numbers right and consider all possibilities. Calculate what you’d have to pay back, including interest, and if you can afford it or if it actually works out better for you in the long run.    

Is debt consolidation a good idea?

As with the majority of financial decisions, a lot of it depends on each individual situation. How much debt you have, for instance, versus the amount you borrow and over how long can differ dramatically from one person to the next. One of the major risks is that once debts have been cleared, the temptation to slip back into old habits is a very real one. Credit cards are one of the easiest but most expensive ways to borrow money. Reducing the costs of that on a monthly basis by remortgaging to consolidate your debts, would seem a wise decision. A typical example may look something like this: Monthly payments on a personal loan, or credit card, totalling £20,000 at a rate of 7.5% over two years will be in the region of £895. Whereas, the same debt paid through a 20-year mortgage rate, with an average interest rate of 7.5% (pretty high for a remortgage rate), would cost around £161 per month. Making it much more manageable on a monthly basis.    

Are all lenders keen to offer remortgages for debt consolidation?

Naturally, all lenders will be inquisitive and obliged to carry out all the fundamental and regulatory checks and procedures. It’s the same process as taking out any sort of mortgage deal. Lenders will ask the reason for raising capital but should allow equity to be released for the purpose of debt consolidation, if everything is in place.    

Why do people remortgage?

There are lots of benefits to remortgaging and consolidating debts is just one of them. Nowadays, people are finding that managing monthly repayments are easier if all of the debt is on one place. Therefore, they are taking advantage of low montage rates to get themselves back on track financially.    

How can MortgageKey help?

MortgageKey are an award-winning mortgage broker with masses of expertise in remortgaging for home improvements. Our friendly advisors have the knowledge and expertise to help you to secure the ideal remortgage deal for you. They also know exactly what will be required at each stage, giving you that little head start before you submit your application, and more chance of it being successful. Get in touch today and see if remortgaging to consolidate debts is right for you.

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