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Debt consolidation Remortgages

How to maximise savings with debt consolidation

If you have any unsecured borrowing, you’ll almost always be paying more interest than if you secured it. Because of the way banks do things, setting lending rates comes down to cost and statistics. The more it costs them to lend, the higher the rate. The more risk involved and statistical chance of someone not paying it back, the higher the rate. Statistically then, in hard times people naturally stop paying their less important bills first. So 99 times out of 100 their mortgage is the one thing they’ll keep paying until they literally cant afford to pay out anything else. Makes sense right?

What is a debt consolidation mortgage?

A debt consolidation capital raising mortgage is typically where a person will take out a mortgage that is large enough to pay off an existing mortgage whilst also covering all existing debts. If your main challenge is making ends meet every month, and it seems like you’re debt wont go away, its probably because your payments are just paying the interest. It can take decades and longer to repay credit cards from just the minimum payment. Consolidating the debt can not only reduce your outgoings, it can help give you structure to actually pay back what you owe, over a comfortable and affordable timeframe.

For many, the main benefit is that it can decrease the interest rate you pay radically, lowering your overall monthly payment, and helping you pay your debts off quicker if you chose. It can also simplify the financial responsibility into one monthly commitment so you don’t have to worry about keeping track of numerous different payments on cards and loans going out on different days of the month, and trying to orchestrate things around payday.

How can I consolidate debt onto my mortgage?

There are two ways this is usually done:

1 – Remortgaging entire debt over to a new lender

For example, if you have a mortgage of £100k, and other debt of £50k, you’d take a new mortgage with a new lender for £150k. This is usually the best option if you want to lower your monthly payments or pay less overall, as the rate on a mortgage us usually the best available (unless some of your debt is on 0% finance of course). Its up to your adviser to structure things for you and make sure you’re getting the best deal.

Pro’s…

  • Easier to budget, only one payment to worry about each month.
  • The rates will be better than the rates you would pay on standard loans/credit cards etc.
  • You can usually borrow up to a higher amount, and release a higher % of equity.
Cons…

  • Sometimes, although it can save you money every month, if you already have a very good rate on your mortgage it can increase the amount you pay back on your current mortgage.

2 – Taking out a new loan and securing it on your current mortgage

For example, keeping your old C&G mortgage on a 0.75% lifetime rate of £100k, and taking out a secured loan for the £50k, effectively having 2 mortgages on the one property. Second charge mortgages at the time of writing this aren’t regulated in the same way as main mortgages, which means lenders have more freedom over what they can do. This allows them to lend in spite of more severe adverse credit, and also give them the option to offer self-cert loans (where a person declares their own income without the same level of proof required – ideal for the self employed).

Pro’s…

  • Good for people that struggle to prove their income, such as the self-employed
  • Sometimes more viable option for people with a poor credit rating
  • If you want to keep your current mortgage, this won’t effect it.
Cons…

  • Will often mean you pay more per month as the rates aren’t as competetive as having it all on one mortgage like option 1.
  • These loans sometimes come with arrangement fees that can be slightly higher than main mortgages.

From that, you will be able to get an idea of which mortgages you are eligible for. It’s the same search engine that many broker’s already use in the United Kingdom. Alternatively, give us a call or get in touch. The advisors we work with are all whole of market and won’t leave any stone unturned until they find the best mortgage for you.

Is Debt Consolidation right for me?

If you’re struggling with paying your repayments or keeping track of them all, a debt consolidation mortgage might be something to think about. As well as making budgeting easier by giving you just one outgoing, it could seriously lower monthly payments and potentially save you £thousands over the term. Besides saving money overall, there are 2 main motivators for consolidating debt:

REDUCING MONTHLY OUTGOINGS or REPAYING DEBT QUICKER

How Can I reduce my monthly mortgage payments?

If your main challenge is making ends meet every month, and you want to give yourself some breathing space, it would make sense to reduce the interest you pay, keeping the same term or even extending it over a longer period. Repaying £50,000 over 7 years is going to cost much more a month than over say 20 years, so make sure you pick an adviser who understands you, and makes the right recommendation.

How Can I repay my debt quicker?

If you can afford to pay more each month, and are looking for a way to pay your debt of as fast as possible, then it may be possible to reduce the rate and pay the same you pay now to repay it over a shorter period. Or if it’s affordable and you want to pay more every month, then reduce the term further and knock off more years. Doing this will reduce the overall amount of interest you pay back and save you the most money. For instance if your debt is costing you £500 a month in interest, and you pay it back in 4 years instead of 5, you’ll save 12 months of £500 = £6,000! Speak to an adviser today about restructuring things for you in the right way that makes your money work as hard as it can.

I’ve been declined, can I still get a mortgage?

If one lender has declined you for a mortgage, don’t worry, there are currently lenders out there that may be willing to help you out. Different lenders specialise in different products. The high street banks tend to be very inflexible, more of a ‘one size will sometimes fit all’ solution.

Many mortgage lenders are much ore flexible and sympathetic to credit problems than the average high street bank may be. Whether the problem is late payments, arrears, ccj’s, defaults, IVA, bankruptcy, all credit backgrounds will be considered.

IMPORTANT: Be wary of debt management companies

If you’ve watched TV, listened to the radio, opened your mail or even answered your phone recently you’re probably aware of the numerous debt management companies out there promising that they could “cut your payments in half”, “lower your interest rates” or “help you get out of debt fast”.

These companies are not regulated by the FCA.

Indeed, it is possible for you to cut your monthly payments with these companies, and for some people it is the only option. But if you’re a home-owner and have some equity in your property, the its ALWAYS recommended to speak to a mortgage adviser before anyone else. Unfortunately they won’t tell you this. Debt management companies and advisers within them are not required to have any professional qualifications or to answer to the FCA with regards to the accuracy or ethical standing to their advice. In fact, many of those who cannot work in regulated services tend to move into debt management as its all the are allowed to do.

The truth is that these people make HUGE commission when they put someone into a debt management scheme, or an IVA, or a bankruptcy, and at your expense. Because often these advisers are not trained financial advisers or have any grasp of the mortgage market, they will not consider all the options you have available. If you have debt they can help, but you may end up worse off.

Imagine, you are a ‘debt adviser’ for a debt management company, and a customer needing help with their spiraling debts comes to you for help. They have a mortgage and £60,000 equity in their property, along with £30,000 in loans and cards. They have not yet missed a payment but are really struggling, so what would you do? Help them of course. But only through the processes you have available, so you’d offer a debt management scheme or equivalent.

These schemes basically offer to restructure you debt and claim to be able to negotiate with your lenders a lower repayment and even get some discount knocked off what you owe. What happens is that the company freeze your payments, and although they may have agreement with the lender to do so, it may immediately put a big black mark on your credit file by way of a default or CCJ, even if you’ve not been late with any payments to date! This can and will have serious consequences if you ever want to borrow again, as you’ll always have to declare something like this on future applications.

Any lender that see’s a default on your file, for whatever amount, can view this as negative, and if sizable, it can keep you from being able to refinance for years to come.

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If you’re ready to make an enquiry please fill out our quick form below and a mortgage expert will be in touch ASAP. If you require immediate assistance please give us a call

 

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About Alan Shaw

Alan is an experienced mortgage adviser and has over 24 years experience in the mortgage, finance and insurance industries. Alan specialises in new build, help to buy, buy to let and mortgages for investment properties. He also has some specialist finance experience, particularly in bridging finance.

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