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Multiple monthly payments getting on top of you? Tired of worrying?
Debt consolidation mortgages can enable you to move all your monthly payments into one single monthly payment, and give you the breathing room you are searching for. Being in debt is very normal, so firstly, please do not worry and think you are different, The Mortgage Broker Scotland has many customers looking to remortgage for debt consolidation. It is very easy to accumulate debt, especially in today’s current market, and this can be through credit cards, loans, payday loans or even store cards. These can all be consolidated if you remortgage. However, it is very important to get the right mortgage adviser as increasing your mortgage means extending the debt on your home, and it is therefore very important to maintain all your payments. But, please do not worry. You are in safe hands with our experienced mortgage experts at The Mortgage Broker Scotland, and every mortgage we advise on is always with the aim of being suitable, affordable and sustainable.
What is a Debt consolidation remortgage?
To put it in plain terms, it is releasing equity from your property to pay off debts. If you have lived in your property for a few years, you will have hopefully gained some equity. So you can release that money to pay off debts that aren’t currently secured on your home.
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The benefit of this is reducing your monthly payments to just one transaction and our goal is to reduce this for you. To enable you to get more breathing space. Our Mortgage Broker’s are solely focused on understanding your financial circumstances and searching the market to ensure you have a stronger financial position thereafter.
What are the pros and cons of consolidating debt?
The main advantage is that you can reduce the payments you’re making each month to repay your loans and credit cards. Instead, you would just make a single payment on your mortgage.
As an example, my mortgage might now be £800 a month as a single payment instead of £600 on the mortgage plus various different debt repayments.
Furthermore, depending on the equity in your home, you may be able to release enough cash to settle some of your outstanding debt and remove some of the pressure on yourself.
The downside is that you may be putting short-term borrowing, such as a two or three-year loan, onto a long-term mortgage. It’s a difficult one, because obviously interest rates on loans are usually a lot higher than a mortgage.
If you’ve got a loan that’s going to be paid off in two years’ time, the last thing we want to do is stretch that out on a 20-year mortgage just to save on a monthly payment. You’re going to be paying an enormous amount more interest over that term. So it’s quite important to look into interest rates and calculate the exact costs before making any decisions. It’s very important to speak to a mortgage advisor.
WHAT IS THE PROCESS FOR DEBT CONSOLIDATION AND WHAT SORT OF DOCUMENTS DO I NEED?
It’s very similar to applying for a mortgage. You will need standard documents such as payslips, ID and bank statements. One of the main differences is that you will also need statements illustrating the debts you’re potentially looking to consolidate.
We would look into interest rates and whether there are any penalties for paying the debt off early. By looking at the specifics of how much you owe and your mortgage situation we can give you a clear, straightforward answer on whether it’s worth doing or not. It’s all about assessing whether it’s a good idea financially.
WHAT’S THE DIFFERENCE BETWEEN DEBT RELIEF AND DEBT CONSOLIDATION?
Debt relief is something you can enter into to have your debts written off or reduced, based on your personal circumstances. There are specific debt relief agencies out there to help with this.
From a mortgage perspective debt relief is seen as an individual voluntary arrangement where you go into a debt management plan. This can affect your credit rating significantly.
It may seem like a good idea in the short term, but it will stay on your credit file for up to seven years and impact on any further borrowing. It could be almost impossible to get a mortgage in the future.
So debt relief is very much a short-term solution which is often not the best option. Be careful, as there’s not an awful lot of information about how it works. Yes, your debt will be written off, but it’s important to understand the longer term effects.
Meanwhile debt consolidation is where you roll your debts into your mortgage. This way you have a single payment to cover each month.
CAN YOU REMORTGAGE WITH CREDIT CARD DEBT?
Yes, absolutely. it’s probably one of the most common credit areas we look at. It’s very easy when you have a credit card to think, “Well, I’ve got a couple of hundred pounds on that already, what’s another hundred pounds?” And it soon increases.
Again we would look at your individual circumstances. If you’ve got a rate of 25% on a credit card then then it may be a good solution to add that to the mortgage. But if you’ve got a 0% credit card, it’s probably the worst thing you can do.
In summary, yes, you can still get a mortgage if you have a balance on a credit card. Whether or not you’re consolidating is another matter.
CAN YOU CONSOLIDATE DEBT TWICE?
If you’ve got a good reason to do so, yes. A common example where you may have run up debts on a credit card getting your current property ready so that you can move. You sell the place for a good value and move into the next property.
You can roll these costs into the mortgage. But then you might find your new property needs some work. You might want to change the kitchen or bathrooms. So while you have eliminated your previous debt, you roll up another amount of debt.
It’s quite a common thing. It’s all going to come down to each lender’s criteria but it’s definitely possible.
WHAT DEBT DO MORTGAGE LENDERS CONSIDER?
It’s generally unsecured loans – anything you’ve taken out that isn’t secured on your own home.
One of the big things we come across is PCPs and hire purchases – where people buy vehicles with a ‘balloon payment’ at the end. Again, that’s not a problem at all.
Secured second charge loans are also acceptable. Lenders will have a separate criteria for that but sometimes people take out a secured loan on their home. It’s almost a second charge mortgage really. Lenders will allow you to remortgage to pay that off.
Another one that people may not really always consider as a debt is the Help to Buy Equity Loan that applies on lots of new builds. That’s also a secured loan on the home. If you were to sell, you would have to pay the loan off first and foremost. Again lenders will let you consolidate that loan once the five year interest free period has finished. Lenders understand that in the real world people do have debts.
WHAT OTHER ADVICE DO YOU HAVE ON DEBT CONSOLIDATION?
The only other thing I would say is rather than making decisions on the fly, pick up the phone and speak to a mortgage advisor. Each individual lender has different criteria and different guidelines about loan amounts compared to what you owe on the property.
By talking to us you’ll understand if debt consolidation is going to be possible and we can explore whether it’s a sensible option. If it’s the right move to consolidate, we’ll explore all the options and help you achieve your goals.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 2%, but a typical fee of £495 is payable on offer.