If you are thinking about re-mortgaging to consolidate debt, before you increase your mortgage, check out all other options that are available to help you reduce your monthly outlay. Consolidating your debts to a low rate re-mortgage deal may appear attractive but it could result in costing you more in the long term.
However, providing you find the right re-mortgage deal, a debt consolidation mortgage could help you take control of your finances.
What is a debt consolidation mortgage?
If you wish to reduce monthly repayments on a number of debts such as secured and unsecured loans, credit cards and store cards, it may be possible to do so by consolidating all the debt into a debt consolidation re-mortgage providing that you own a property where you have a suitable amount of equity.
Re-mortgaging involves raising additional money on your property. Although the regular repayments and annual interest can be cheap, arrangement fees and additional charges can sometimes prove to be expensiv. You need to carefully consider if you can afford the new mortgage repayments before proceeding with an application.
Like all debt solutions, debt consolidation mortgages have their own advantages and disadvantages and they include:
Advantages
- You may be able to reduce your overall monthly repayments by re-mortgaging.
- By lowering your monthly payments, you may have the potential to increase your disposable income.
- You may be able to repay the re-mortgage over a longer term and if it is a flexible loan, you may have the ability to make overpayments, underpayments and take payment holidays.
Disadvantages
- By consolidating your debts, you may be securing previously unsecured debts against your property.
- If you are increasing the term over which your existing debts are currently being repaid, it could result in you paying back more in interest over the term.
- Although a re-mortgage can reduce your monthly outgoings, there could be charges involved particularly if you are changing lenders. These could include a redemption penalty for changing your current loan, an arrangement fee for moving to a new lender and valuation and legal costs.
- If you have or have had credit problems obtaining a re-mortgage may be difficult or expensive.
- Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured against it.
Secured and unsecured loans
As an alternative to re-mortgaging, depending on your personal circumstances, it may be better for you to consider either a secured or personal loan to consolidate your existing debts.
Secured loans
Secured loans can be used for a range of purposes which including debt consolidation. A secured loan involves releasing equity on your property by means of securing a loan against it.
If you fail to maintain the repayments on a secured loan, the lender has the power to take legal action to force you to sell the property to repay the amount borrowed and any additional charges and fees.
The advantages and disadvantages of secured loans include:
Advantages
- You could be paying at a lower rate with a secured loan than you would be with credit cards or overdrafts.
- A secured loan could help raise additional funds without having to face potential early redemption charges or arrangement fees for re-mortgaging.
- By lowering you monthly payments you may have the potential to increase your disposable income.
Disadvantages
- You may be securing previously unsecured debts against your property.
- If you are increasing the term over which your existing debts are currently being repaid, it could result in you paying back more in interest over the term.
- If you have or have had credit problems, obtaining a secured loan may be difficult.
- Your home may be repossessed if you do not keep up repayments on loans secured against it.
Personal Loans
Personal loans or unsecured loans can be used for a range of purposes including debt consolidation. An unsecured loan involves borrowing money without offering any security in return to the lender. As this involves a greater degree of risk for the lender if you fail to keep up the repayments, unsecured loans are usually more expensive than secured loans.
To obtain an unsecured loan at competitive rates you will need to have a good credit rating.
Unsecured Loans have their own advantages and disadvantages, and some are listed below:
Advantages
- Less risk involved to you as no security is required. Subject to their credit rating, tenants can qualify for them
Disadvantages
- They are usually more expensive that secured loans and those with a poor credit rating may not be able to obtain an unsecured loan or may have to high interest charges
Get quality advice before you decide
Before making a final decision, you should consult an FCA registered Mortgage Advisor who can provide or arrange advices on all solutions available.
Choosing the right solution will probably be one of the most important decisions you will make.
Making the wrong choice of solution can result in you having to pay hundreds if not thousands of pounds more than you need to pay.
The Mortgage Advice Service provides a free financial review service to help identify the best solution to suit your personal circumstances.
If you are worried about your current level of debt and If you are interested in finding out more about consolidating your debts contact The Mortgage Advice Service today on 0141 956 7756 or on 0800 011 2322 and speak to one of our friendly and experienced mortgage advisors.
Our Fees
Our mortgage review service is completely free and there is no commitment for you to action any recommendations that we make.
However, if you choose to apply for a mortgage or re-mortgage through The Mortgage Advice Service, depending on the complexity of your individual circumstances, fees may apply. Should a fee apply, we will explain what you will be charged prior to proceeding with your application. We will charge a fee of between £0 and £235. If a fee is being charged, it is paid on the completion of your mortgage.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Consumers First Limited trading as The Mortgage Advice Service is an Appointed Representative of PRIMIS Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority for mortgages, protection insurance and general insurance products. Consumers First Ltd is registered in Scotland: SC452198, Registered Office: 3 Bute Crescent, Bearsden, Glasgow, G61 1B
