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Understanding what debt consolidation is if often the first step you take in the getting on top of your finances with a view to make one manageable monthly payment so that you can start to see the balance reduce.
Many customers who enquire about debt consolidation mortgages feel worried and stressed by the thought of not being able to repay what they owe and bogged down in simply making minimum payments without making a difference to the overall balances.
A mortgage solution is not always the right avenue for debt consolidation, here are some alternatives that you want to consider before securing debts against your home. How much you owe on your debts and what rates, or length of time left will influence which product will be right for you.
Alternative Debt Consolidation Solutions:
- Debt Consolidation Personal Loan: A straightforward option that may come with higher interest rates. If payments are met, then your debts will be repaid at the end of the loan term.
- Low-Rate Credit Cards: Effective for smaller debts but require disciplined management for making payments.
- Debt Management Plan: Can help in the short-term however, could impact your credit score in the longer term.
Debt Consolidation Mortgage Advice
The undertaking of debt consolidation mortgage advice is considered high-risk lending within the industry as it is extremely easy to go wrong. It is always best to seek experienced and trusted mortgage advice to avoid ending up in a worse situation and paying more interest over the term of your loan.
Being an experienced team of mortgage brokers, we can explore assorted options with you, including secured loans, a debt consolidation remortgage, or a further advance mortgage to recommend the best way forward for your personal situation.
It is important to remember that consolidating unsecured debts into a secured loan against your home is risky. If you fail to meet your monthly mortgage payment, your home could be repossessed by your lender, and you could become homeless.
Main Debt Consolidation Mortgage Solutions:
Further Advance Mortgages:
A further advance mortgage for debt consolidation involves borrowing additional funds from your current lender to repay your debts. This can be beneficial if you are tied into an existing deal, such as a fixed rate, and would incur early redemption charges if you switched.
- Requirements: You will need to pass a full affordability and credit score application with your existing lender to be accepted for the additional funds. Changes in your credit score since taking out the original mortgage may pose challenges.
- Rates and Terms: The additional money raised will be at a different rate and term than your existing mortgage. Getting both parts of your deal to finish around the same time is advisable with a future remortgage in mind.
Debt Consolidation Remortgage:
A debt consolidation remortgage allows you to use your built-up equity to repay your debts. If you are lucky enough to have owned your own home for a while now, you may have built up a fair amount of equity which can be used to repay your debts.
- Best for: Those not in a fixed-rate deal with their existing lender or currently mortgage-free. You will also need a good credit score and a fair amount of equity the longer you have owned your home the more equity will be available to repay your debts.
- Process: A debt consolidation mortgage involves moving your mortgage, along with borrowing additional funds to repay your debts, to a new lender. You will need to pass credit score and affordability checks as part of the application process.
Secured Loan Mortgages:
A secured loan for debt consolidation might be recommended if you have been declined a further advance for additional lending or if your current lender has stopped lending new money.
- Structure: A secured loan is another mortgage on your property that is taken out with a different lender. The money raised is secured against your home and it can be used to repay your debts.
- Multiple Mortgages: It is possible to have multiple mortgages on the same property, each subsequent one at a higher rate due to the increased risk to each lender.
- Speed: Secured loan mortgages, often called second charges or homeowner loans, can be quicker to complete than a debt consolidation remortgage, often providing funds within a couple of weeks. These can be a good solution where time is critical.
Our experienced mortgage broker team will recommend the best way forward based on your individual objectives and goals. It is also important to seek trusted mortgage advice as mistakes can be costly and you can waste time.
You should carefully evaluate the implications before proceeding with a debt consolidation mortgage application, as it will increase the total mortgage balance secured against your property. Failing to keep up with mortgage payments could result in your home being repossessed by the lender.
