Debt Consolidation - Remortgaging to manage your debt.
Updated: Mar 8, 2021
A debt consolidation mortgage could help you improve your situation if debt is holding you back. But how exactly does a debt consolidation mortgage work, is it more cost-effective paying your debts back over a longer period, and crucially is it right for you?
If you have credit card and loan payments to different lenders, then you may wish to consider consolidating your debts by remortgaging. A debt consolidation mortgage could help you reduce your overall monthly payments, by either paying off the debts completely or reducing the amount outstanding, leaving you with more disposable income and reduced financial pressure.
How does it work?
Debt consolidation mortgages work by using the equity in your property. You can sometimes borrow against the equity in your property to raise cash to pay off your consumer credit debt. Depending on the amount of your debt and your overall situation you may be able to borrow enough to clear all of your personal debt, leaving you with one payment each month, or reducing your overall monthly outgoings.
Calculating the equity in your property
Your home equity is the difference between the value of your home and the outstanding mortgage value. If you have lived in your house for a while, then it may well have increased in value. If your current mortgage is a repayment mortgage, then the balance decreases over time, increasing the equity available. You can get a good estimate of this if you check selling prices of similar properties in your street, and then compare the values against your mortgage statement. Here is an example:
House Value: £290,000 -
Mortgage Balance: £180,000 =
Current Equity: £110,000
Cash released to clear debts: £30,000
Remaining Equity: £80,000
You may decide to use some of the equity in your home when you remortgage. By borrowing more money - against the increased value - you release additional funds.
Is Debt Consolidation right for you?
Mortgage interest rates are usually much lower than credit cards or loans, so your monthly payment will be lower, making it easier to manage your monthly budget. In the right circumstances, consolidating your debts reduces your immediate outgoings and can even save you money in the long run – in comparison with making minimum payments on a credit card. However, in some cases it can mean that you pay more interest overall if you are spreading loans over a longer period.
Debt consolidation can be useful in certain circumstances, allowing you to budget effectively and reducing your monthly outgoings to a more manageable commitment.
To find out if this the right thing for you, please contact us today to find out how we can help.
Mortgage Brokers based in Bristol, Mast Financial Services are here to find your remortgage solution.
Your home may be repossessed if you do not keep up the repayments of your mortgage
Think carefully before securing other debts against your home. You may have to pay an early repayment charge to your existing lender if you remortgage and other fees may be payable. You may also end up paying more interest over the term of the debt.