Remortgaging to pay off debts
If you’re struggling to keep up with loan repayments, have you considered remortgaging your home to pay off your outstanding debts?
Whilst remortgaging a house to pay off debts isn’t the right approach for everyone, it can be a sensible and cost-effective option for many people who want to raise cash to settle outstanding agreements.
Releasing some of the equity that’s already in the property and using it to clear other debts, aside from your mortgage, can take some of the stress away from everyday living. If your income has dropped or you have needed to pay out for several expensive items in recent months, you may find yourself struggling to repay your debts. A cash injection would almost certainly take some of the pressure off and enable you to significantly improve your financial situation.
What is debt consolidation?
The term debt consolidation is used when multiple debts are combined into a single loan. Having all your debt in one place makes it easier to manage and clean the slate over all your credit cards, bills, and loans.
Consolidating debt gives you a chance to lower the monthly charges on the higher interest rate loans and cards, moving them to lower interest rate loans, or in this case, adding them to your mortgage. With so many mortgage lenders in the market, a good broker can often find one that beats your current mortgage deal, allowing you to clear those outstanding debts without affecting your monthly repayments.
However, that doesn't give you a free ride to build up balances again, getting into the same type of problem you were experiencing in the first place.
How can remortgaging help consolidate debt?
Remortgaging can release equity you've earned in your home so far and can be used to pay off any niggling or troublesome debts. With enough equity in your property, you can add any existing loan amounts to your mortgage, to pay off those additional creditors.
Also, remortgaging gives you a chance to find a better deal, saving money long-term, and resulting in lower payments each month. Again, the monthly savings you make can be used to boost the payments on unsecured debts.
How does remortgaging work?
Remortgaging is switching from one provider to another, taking advantage of better interest rates or terms. When you remortgage, your replacement mortgage provider will consider how much money you've already paid off the capital amount (known as equity).
They lend you the money to pay off your existing mortgage and any early exit fees, and in turn, you make your new monthly mortgage repayments to them.
Just like your initial or previous mortgage applications, they also need to look at your credit score, how much you want to borrow, the term of the plan, and how much you can comfortably afford to pay each month.
The right remortgage deal may also help you to reduce your current mortgage payments, leaving you with more money to chip away at those monthly bills.
CLS – expert mortgage brokers for every situation
Speak to one of our experienced mortgage brokers, and they will be able to quickly tell you if remortgaging your home to pay off debts is a suitable way forward for you and your family.
There are many advantages to debt consolidation—adding those out-of-hand credit card bills and that forgotten personal loan to your mortgage can provide peace of mind, lower stress levels, and provide a better option to pay off existing debts. However, your new mortgage deal needs to ensure you're financially better off by making the move, and not digging yourself deeper into a hole, just for the sake of it.
As an expert mortgage broker, we help homeowners consolidate debts every week. We'll explore all of the options available to you. We can compare your current mortgage lender to a selection of alternatives, taking into consideration the mortgage type, term and interest rates, to ensure that remortgaging will improve your circumstances and not lead to escalating problems.