What is a Debt Consolidation Mortgage?
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What is a debt consolidation mortgage?
Debt consolidation mortgages are a type of Remortgage that lets you use the Equity in your property to pay off any debts you owe elsewhere and then move them onto a single mortgage deal. Put another way it is Debt consolidation with Home Equity.
So in some cases, debt consolidation mortgages can simplify your repayments and reduce your amount of debt overall. It’s not for everyone, though, and we’ll come to why in a moment.
Whatever your reasons for a debt consolidation mortgage, rest assured we have already helped loads of homeowners consolidate their debts into a mortgage.
The following page will walk you through everything you need to know about debt consolidation mortgages – from the pros and cons to the Options available to you.
What is Debt Consolidation?
Debt consolidation is when you take out a new loan to pay off several different debts all under one roof. The main benefit of Debt consolidation is to reduce…
- Interest rates
- Monthly payments
- Stress
Like alot of people you might have…
- credit cards
- personal loans
- payday loans
- expensive overdrafts
When each one of these is on a different rate and all going out of your bank accounts on different dates, it can be very hard to juggle all these balls at once.
When you engage in debt consolidation, you effectively take out a new loan (a mortgage in this case) to pay off all these individual debts…. leaving you with one main debt and just one repayment to make each month.
Should i get a debt consolidation mortgage?
This is a personal choice however there are pros and cons you need to consider…
Pros
- Borrowing and paying back money to multiple sources can be confusing and not easy to manage. With a debt consolidation mortgage, you may be able to make repayments to a single lender which is simple and easy to get your head around.
- As a Remortgage is secured on your property, Remortgage Interest rates are generally lower than credit card and personal loan rates. That means that monthly repayments could be much lower with a debt consolidation mortgage than with unsecured loans. (dependant on available deals and current loans)
Cons
- Unsecured debt (like credit cards) means it is not secured on your property. However when you do a debt consolidation mortgage you convert those unsecured debts into secured debts. This could put your home at risk and If you can’t afford to make the repayments, the lender may try to repossess your home.
- Whilst Personal Loans and credit cards might only have a short Term to run your Mortgage in contrast could have a longer term meaning you could end up paying back more in the long run.
- Remortgages can come with fees eg. Valuation Fees, Solicitors Fees and Lenders Arrangement fees. However, we do have access to Fee Free Remortgage products.
Do I have to do a Debt Consolidation remortgage with my current lender?
No , you do not have to Remortgage with your current Lender. However we would as best practise compare their rates too. So if a different lender has cheaper or better terms you might be able to switch over to them and pay off your debts.
Where can I get a debt consolidation mortgage?
Most major lenders offer debt consolidation mortgages, while specific lenders offer loans to borrowers with bad credit scores.
However before jumping ahead, add up all of your Loans and get the latest Statements so you have a clear idea of the…
- Amounts outstanding
- Interest rate being charged
- Early repayment charges
Get an idea of your monthly Affordability , use a Budget planner to undertake a closer look at your income & expenditure and see precisely what your maximum monthly affordability is for a new loan.
Get the latest copy of your credit report via check my file to make sure that you are seeing the latest picture of your debts.
Finally and most importantly, arrange a debt Consolidation review with your Mortgage Broker.
Bad debt consolidation Remortgage
At Berks & Bucks Finance we understand that sometimes due to certain life events and difficult circumstances you could get adverse credit markers on your credit report. This can make it difficult to obtain a Mortgage from your average high Street Lender.
However There are a Group of specialist Lenders that are looking after this forgotten area and have the products to help.
These lenders don’t just use computers to do assess the application and credit score, they still retain the human touch and will get an underwriter to manually look at your case and depending on the level of Bad credit, look to provide you with options.
However, bear in mind some of these lenders are not direct to the public and are only available through specialist Mortgage Brokers. So it’s best to use a Competent Broker to research the Market for you.
Find out more on bad credit mortgages Fin
3 methods of debt consolidation.....
A Remortgage with a new lender to take out the current equity in your property to pay off other debts.
Another lender will provided you with a second mortgage secured over your property, to pay off other debts.
A further advance is where you borrow extra money from your current lender to pay off other debts.
Second Charge Mortgage services are referred to a third party. Neither Berks & Bucks Finance nor PRIMIS are responsible for the service received.
Remortgage
By remortgaging to consolidate debts, you are effectively releasing the equity in your property to pay off your other debts.
What is Equity?
Equity is the difference between the value of your property and the Debt secured on the property at any given time.
When you first bought your property, you would have put down a deposit and your lender would have given you a certain amount of Mortgage.
If over the years your Properties Price has increased and you have been paying off your mortgage you now could have more Equity than you did before.
A remortgage can let you free up this cash so you can use it to repay debts.
Just like any other mortgage – you’ll need to show any lender:
- Your credit history
- Value of your debts
- The value of your property
- The equity you own
- How much you want to borrow
Find out more: How does remortgaging work?
Second Charge
Sometimes, doing a Remortgage might not be your best option. Here are some reasons why…
- You have an excellent interest rate on your current deal.
- Your present Mortgage is on a fixed rate and remortgaging early could mean high early repayment charges.
- You have bad credit and might not qualify for a Remortgage.
In these circumstances, you can get something known as a second charge mortgage. Your present mortgage will stay in place and another Lender will provide you with a second Mortgage secured against your property. In other words, you’ll have two mortgages on one property, with 2 monthly payments going out to 2 different lenders.
Second Charge Mortgage services are referred to a third party. Neither Berks & Bucks Finance nor PRIMIS are responsible for the service received.
Further Advance
A further advance is where you borrow extra money from your current lender on the same mortgage deal (or they might offer you a different product) Just like a second charge you would end up with 2 different mortgages on your property. However unlike a second charge both loans would be with the same lender on a different rate.
Why Us
- Raising The standards of financial advice
- Making financial advice accessible to all
- Trusted & stress-free financial advice
- Friendly, personable advisors
our Mortgage Butler service
Help you to collate all of the documents you will need to apply for a mortgage
Complete and submit your application
Handle all the enquiries by the Mortgage Lender
Liaise with your Estate Agent
Help you to nominate a good & competitive solicitors
Work with all the parties to get you to Mortgage completion
Keep in touch with you on a yearly basis and help with your future needs
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Example Study : Helping Families with a Debt Consolidation Remortgage
Meet the Johnsons:
The Johnson family, comprised of Richard, Meeta and baby Meela, living in a Terrace House and both with good Secure Jobs. However, over the years they had accumulated debt and found themselves facing the common challenge of managing multiple high-interest debts totalling £60,000. Their present monthly payments to all of their Debts and Mortgage had spiralled to £2,300 per month.
The Debts were.
- Credit Cards – £35,000
- Personal loans- £25,000
- Present Mortgage – £150,000
Juggling credit card balances, personal loans, and other financial commitments became overwhelming, impacting their monthly cash flow and causing stress.
The Challenge:
With varying due dates, rising interest rates, and increasing payment amounts, the Johnsons were struggling to keep up and worried that they could start missing credit Payments. They sought a solution that would simplify their finances, reduce monthly payments, and potentially save on interest.
The Solution:
After some online research they reached out to Berks & Bucks Finance to guide them through the process. and after consultation with our Debt Consolidation expert, the Johnsons decided to explore a Debt Consolidation Remortgage
Steps Taken:
1. Financial Assessment:
Our Debt Consolidation Expert took a comprehensive look at the Johnsons.
- Existing Mortgage –This is important because the first option to explore is to contact their existing Lender and see if they are eligible for a Further Advance, this will save the Johnson’s Time & Money
- Outstanding debts – We will always ask to see a copy of the Latest Debt Statements to confirm In Detail the Interest rate charged and terms & conditions of all of the Debts
- Property Value – By undertaking some research on Zoopla & Right Move etc, our Experts were able to get an approximate value of the property which was £400,000
- Latest Credit File – This will show the latest snapshot of their Credit History showing exactly what is owed, the monthly payments, and payment history.
2. Debt Consolidation Plan
By inputting the Johnsons existing Debts & Interest rates and The New Proposed Mortgage rate into our Debt Consolidation Calculators …we can work out the estimated difference in cost to repay the debt if it is added to your mortgage rather than repaid via the existing arrangement. In the Johnsons’ case, the calculator showed That changing the Loans to a single Re-Mortgage was a positive outcome, so we proposed a Debt Consolidation Remortgage plan. The Johnsons would refinance their existing mortgage, releasing equity to pay off high-interest debts.
3.Bespoke Mortgage Terms
To fit in with their goals, we sourced a remortgage plan with favourable terms. The Johnsons’ existing mortgage balance was £150,000, The new remortgage amount was £210,000, so we were able to release £60,000 in equity to consolidate their debts..
4. Streamlined Finances:
By consolidating their debts into the remortgage, the Johnsons now had a single monthly payment of £800. This not only simplified their Monthly Payments but also provided a clearer path toward debt freedom.
Results:
Lower Monthly Payments:
- The Johnsons experienced a significant reduction in their monthly payments, down from £2100 to £1200, contributing to improved cash flow.
Financial Peace of Mind:
- The streamlined financial structure brought peace of mind to the Johnsons, reducing stress and allowing them to focus on their family’s well-being.
Conclusion:
A Debt Consolidation Remortgage could help some people. With Berks & Buck Finance’s tailored approach, we can help you successfully navigate the process, achieving lower monthly payments, potential interest savings and a roadmap to reduce your Debt.
Are you facing a similar financial challenge? Contact Berks & Bucks Finance today to explore how a Debt Consolidation Remortgage could benefit you.
Let us make it easy for you!
Think carefully before securing other debts against your home. Consolidating debt may reduce your outgoings now, but you may end up paying more overall. Your home may be repossessed if you do not keep up repayments on your mortgage.