Debt consolidation Remortgages
Published 1st December 2017
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.
- 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.
- 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).
- 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.
- 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 potentially lower monthly payments and save you money over the term.
The total cost would be dependent on your situation, how long you secure the debt for, the mortgage rate you get and the interest you're paying - so bear in mind that this could mean that you end up paying more over time even if the monthly repayments are reduced. Think carefully before securing other debts against your home.
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: Debt management companies post regulation
There has been a major review of Debt Management companies by the FCA in recent years, many of which have been forced to completely change their processes and fall into line, or close the doors. Since the changes were enforced this is exactly what happened, and many customers were moved over to the larger firms conducting themselves in the right way. More on this can be found on the FCA site here if you're interested!
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, then its ALWAYS recommended to speak to a mortgage advisor.
Debt Management Schemes basically offer to restructure your debt and can often negotiate with 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 red 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 sizeable, it can keep you from being able to refinance.
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.