Remortgage for Debt Consolidation

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Remortgage for Debt Consolidation

Remortgage To Pay Off Debts

Financial situations can change for us all for a varying number of reasons, and for people who find themselves struggling with debt as a result, life can be tough. The constant worry about how to keep everyone satisfied can eat away at you, and accumulating interest on money that you owe can make you feel like your finances are spiralling out of control, and land you in a situation that you may never get out of.

For people who own their own home, however there may be a possible alternative solution. By either taking out a secured personal loan, or a remortgage for debt consolidation, you can use equity from your home to help you to pay off your debts. Do note however that you must take into consideration that the implications of such action could be total credit charges being higher in the long term than your current short term arrangements.

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Remortgage Rates for Debt Consolidation

For some people, it might be tempting and indeed the correct thing to do to take out a loan or credit card to pay off their debts, but these can often result in high interest charges. One of the best loan rates that you will typically get is through a remortgage or personal loan secured against your home. And because the rates are generally lower, the repayments should be more palatable each month.

By consolidating some or all of your debts, it is also possible that you will save money on interest and instead of paying off a number of separate debts, customers can often drastically reduce their monthly outgoings, making debt less of a burden.

How Does a Remortgage Work?

By taking out a secured loan, or taking out a remortgage to pay off debt, you will have a lump sum of money which you can then use to pay off everything that you owe . You will then be left with either the single loan repayments, or mortgage repayments to pay every month. This not only could work out better for you financially but may also be a lot easier to organise.

Secured Loan or Remortgage?

Everybody`s situation is different and it would be foolish to say that the solution for each individual would be the same. It is therefore important that when you are deciding whether it is better for you to take out a secured loan or remortgage to pay off your debts, you carefully consider your personal situation, and ask for advice from an adviser such as us here at IMC Mortgage Brokers.

Secured Loan for Debt Consolidation

A secured loan involves guaranteeing your loan against your home, so that you are lent the money that is required to clear your debts. It is usually arranged and referred to as a second charge against your property With this in mind you must still remember that if you fail to make the repayments, you might find that it affects your credit rating at best – or at worst you could still lose your home.

They can be a particularly useful option to consider if you already have a bad credit rating and are struggling to remortgage.

Also some people have a good existing mortgage deal that they wish to retain or may have penalties to redeem their current deal early, and if this is you, you might also want to consider a secured loan that could work out as a financially better option.


Remortgage for Debt Consolidation

If you have a property where you have a suitable amount of equity, another option is to remortgage your home. By doing this, you will release some of the equity that you have, giving you a lump sum that you can use to pay off the money that you are owing.

At the moment the maximum Loan to Value (LTV) is 90%, meaning that if your home is worth £100,000, the maximum that you could borrow – including your existing mortgage, would be £90,000.

If your house, for example is worth £250,000, and your current mortgage £110,000, you could borrow up to £225,000, giving you a lump sum of £115,000 to pay off your debts. This is all still subject to the lenders assessment of affordability.


Monthly Repayments

In addition to the knowledge that you have paid off all of your debts, there can be substantial financial gains to remortgaging your property to consolidate your debts.

For example::


Type Balance Term Rate Monthly Payment
Mortgage 120,000 22 years 4% 685
Loan 12,500 6 years 15% 265
Loan 3,000 4 years 17% 87
Credit Card 5,000 NA 22% 92
Total 140,500 1,129


Compare this with:


Type Balance Term Rate Monthly Payment
Mortgage 140,500 22 years 4% 802
Total 140,500 Saving of £327

It is of course important to remember that every case is different, so make sure that you check how this would work for your specific circumstances.


Remortgage Advice

If, having consulted a mortgage adviser, you believe that remortgaging for debt consolidation is what is best for you, the other aspect is considering which is the best remortgage deal to apply for. This may mean staying with your current mortgage company, or it might mean switching to another provider. There may be penalties and fees associated with this so do ensure all of this is factored in to your research. Do also remember that you must take into consideration that the implications of such action could be total credit charges being higher in the long term than your current short term arrangements.

Here at IMC Mortgage Brokers we have experienced advisers in all aspects of borrowing money for debt consolidation. For more information about how we can help you get in touch with us today.

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