What is remortgaging for debt consolidation?
Remortgaging is a way to replace your current mortgage provider and product with new terms – often changing the amount you pay each month. By remortgaging your home you can free up a lump sum, which can then be used to clear other debts such as credit card repayments, unsecured loans or other types of finance – however it should be stressed that this is not suitable for everyone and we have to do a lot of calculations to make sure it’s beneficial and you understand the implications of adding any debt to your mortgage.
If you wanted to remortgage your home and free up a lump sum of £5,000 to pay off an outstanding credit card debt in full, you could save months of potential interest and credit card repayments, although of course it might be the case that your monthly mortgage payment rises slightly.
On other occasions, a debt consolidation remortgage can be used to reduce your overall monthly commitments. This might be a way of reducing your financial outgoings but it almost certainly means increasing the length of term of the debts; for example lets say you have a loan that you pay monthly for 5 years, after 5 years the loan is paid off. However you could consolidate that into the mortgage but that loan amount is now being paid potentially over a much longer time frame. This can increase the overall cost of the interest you pay in total, so you have to be aware that you would be securing previously unsecured debts against your property and this in turn means that you are reducing the amount of equity you have in your home or property.
The good bits of remortgaging for debt consolidation
Some good things about debt consolidation remortgages include;
- You’ll almost certainly change your mortgage lender, often to a better deal if you’re on what’s called a standard variable rate
- You’ll only have one monthly payment if you consolidate everything together
- You’ll have the peace of mind that you know exactly how much you’re paying out per month
- You might be able to free up some disposable cash month to month
The downsides of remortgaging for debt consolidation
There’s always a downside to everything though so don’t forget this is why you need to take advice; to make sure it’s suitable for you and your circumstances:
- Your monthly mortgage payment could go up as you’re borrowing more money
- Chances are if you’re stretching a 5yr loan over 25 years you’re going to pay more in total interest.
- You might have to pay fees to switch your mortgage or even fees to set up the new mortgage so all these have to be taken into account
Could I have a Debt Consolidation Remortgage?
The answer is maybe! It’ll depend on a number of factors, including but not limited to; the amount and frequency of your income, your employment record, the current value of your home and how much equity you have, the size and type of debts you’re wanting to consolidate into your home, the length of time you have left on your current mortgage and your credit history.
FAQ’s
- What can I borrow?
Loan sizes range from £5000 to £15,000,000 - How long are the repayment terms?
A mortgage can be over 5 to 40 years. - What are the interest rates?
They can start from 1.14% but this will be dependent upon a number of factors and this can change on a daily basis – and you might not be eligible dependent upon your circumstances - How much are fees?
This depends very much on each individual lender and mortgage product but you can assume they might be up to £1000
As you can see there’s a lot of information to take in and think about and this type of remortgage isn’t suitable for everyone. It’s best to talk to an independent mortgage broker that has experience of doing these types of mortgages to make sure that it’s right for you and your circumstances and to clarify all the costs and fees that are mentioned above.
