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Remortgaging for Debt Consolidation – What you need to know

People sometimes ask us whether remortgaging for debt consolidation is a good idea. While it is certainly an option, it might not be the best solution for you. We can help you explore all the potential ways to reduce your debts.

What is Remortgaging?

Remortgaging is shopping around for a new mortgage deal: usually to save money, get a more suitable deal, or sometimes to extend your borrowing.

It involves comparing different mortgage deals, finding an option that will suit you and applying for the mortgage.

Who is able to remortgage?

Anyone with a mortgage can look around for alternative options. It can be time consuming to seek out and apply for a mortgage deal so it helps to be certain that you meet the mortgage criteria. If you fall short on any of the lender’s guidelines, you may not be approved.

The lender might set a minimum credit rating, have a maximum age range and have limitations on the type of property. A Mortgage Broker can help you narrow down the options and find a product that will suit your unique circumstances .

In what circumstances do you remortgage?

There are various situations where it can make sense to remortgage. Typical examples include:

  • When your fixed rate deal is ending
  • If interest rates are expected to go up
  • If interest rates have dropped
  • To switch from interest-only to a repayment mortgage – or vice versa
  • Your house price has gone up – more equity can mean lower rates
  • To borrow more – to pay off debts or fund a purchase
  • To get a more flexible mortgage

Remortgaging for debt consolidation – how does it work?

With a debt consolidation remortgage, you are increasing your mortgage borrowing to pay off personal loans, credit cards and other debts. It can make financial sense because unsecured debts like these can have much higher interest rates than a mortgage. Consolidating the debt means you only need to worry about paying a mortgage payment each month and not multiple debt repayments. You can reduce your monthly outgoings and it can be easier to budget more effectively.

One disadvantage to consider is that although the mortgage interest rate is lower, you will be repaying the debt over a much longer period. There may be more efficient ways to manage your debt that are not so long term.

What to consider

First, check that your new monthly payments will be affordable. Talk to a broker to see what your repayments will be. Remember that a mortgage is a secured loan, which means if you fall behind on the payments your property could be repossessed.

Your credit rating is also a factor. If your credit has been damaged by the debt since you took out your existing mortgage, you may not be offered the most favourable remortgage deals.

You need to have paid off a certain amount of your mortgage for extended borrowing to be an option. You can only extend your mortgage up to a certain ‘Loan to Value’ which is 90% for many mortgage lenders. It means that your new mortgage cannot exceed 90% of the value of your home.

For example, if your home is worth £300,000, you need to leave at least a 10% ‘buffer’ for your mortgage. 10% of £300,000 is £30,000, so your maximum mortgage will be £270,000.

How can a Mortgage Broker help?

Here at Lime Tree FS (Cambridge) Ltd we can help you work through the options and whether remortgaging for debt consolidation will work for you. We look at your personal circumstances to help you find the most effective way to reduce your debts.

We’ll look at your current borrowing and loan rates, the potential rates and fees of a remortgage, and compare lots of options to help you decide the best way forward. We can look at your credit rating and support you with the mortgage application as needed.

Lime Tree FS (Cambridge) Ltd is an appointed representative of PRIMIS Mortgage Network, a trading Name of Personal Touch Financial Services Ltd. Personal Touch Financial Services Ltd is authorised and regulated by the Financial Conduct Authority and we’re registered in England and wales. To find out more about how we can help, get in touch with us today.

Debt consolidation is not always the most suitable option, consolidating debts must be carefully considered. It will usually mean more interest over a longer repayment term and there may also be early repayment penalties on your current mortgage, you should think carefully before securing other debts against your home. There are other ways to manage debt such as free debt advice charities, you can find out more by contacting the Money Advice Service https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator these services may be more suitable for you