Remortgage for Debt Consolidation – Complete A-Z Guide, FAQs, Tips & More

Having trouble keeping up with debt payments?

One option you can consider is combining all your debts into a single huge one.

This action has is called debt consolidation and it is thoroughly explained in this article

So let’s dive right in.

What Does it Mean to Remortgage for Debt Consolidation?

Remortgaging your debts means to work out a new mortgage deal and change the principal amount that you took on as mortgage debt. 

However, remortgaging means that you have to increase monthly repayments on your mortgage or increase your mortgage duration and pay it over a longer period to your lender.

Now, when you take high interest loans (such as credit cards), along with the original amount borrowed, you have to pay a big amount as the interest on your loan.

This makes it extremely inconvenient – and in some cases foolish – to let your debt linger on and not clear it as soon as possible. This applies to every high interest personal loan.

But don’t worry,

You can renegotiate your current mortgage terms and increase the loan from your mortgage. This will free up some additional money from your mortgage which you can use to repay your debts, and avoid high interest payments on a personal loan as well.

Mortgages are long term loans and usually, they have a lower interest rate as the amount taken as a loan is also pretty huge. So, if you increase your loan on your mortgage to pay off other high interest debts, it will not be a bad idea.

What is a Debt Consolidation Mortgage?

If you have several debts with monthly repayments, they can be very hard to manage, especially the interest payments in particular.

On a high interest personal loan, the interest is so high that at some point you spend more on paying back interest rather than the original amount you owe.

This can be solved by taking a big loan that deals with several of your debts, this debt is called debt consolidation mortgage. 

Debt consolidation is useful because it combines your loans and makes them easier to pay. In some cases, even the interest rate is lower on your new loan, so you save a lot of money from interest as well.

release equity remortgage

Is Consolidating Debt into Mortgage a Good Idea?

Debt consolidation has its advantages and disadvantages.

One advantage is that you have one loan to worry about rather than several, and if you already have a mortgage deal, you only have to worry about the increased monthly payments to your creditor.

Another advantage is that debt consolidation saves a lot on interest payments. Your consolidation should ideally include only those debts with high interest rates. Also, make sure that you negotiate a lower interest rate on the mortgage, otherwise, it’ll be pretty much the same thing.

Also, if you’ve built up equity in your property, you could remortgage to release equity. Remortgaging equity release means that you get to tap into some of the cash that stands against your home.

However, releasing equity through negotiating a remortgage deal means that now you have to pay a higher amount of money because your debt now will be higher. This only increases your loan repayment period a little.

How Can I Remortgage to Consolidate Debts?

Contact your mortgage lender and explain your situation to him. Then ask him for a loan above and beyond the current amount that you owe. He will most probably tell you a different rate for your interest payments, but you can negotiate that too. 

Also, you need to contact a law professional registered in England and make sure that everything you do is authorised and regulated by the Financial Conduct Authority.

You need to make sure that you negotiate a lower rate of interest than the loan you’re planning on consolidating into your mortgage.

Other Options to Manage Your Debt in the UK

A remortgage deal is very useful, but it is not always feasible to negotiate your mortgage terms to include a higher amount. This happens in the case when you think you might not be able to pay the amount in full.

If you cannot pay the amount in full, you’ll lose your house over it too, which is just worse off than where you started so you need to consider other options in addition to remortgaging and consolidating your loans.

If you owe a loan to your credit card’s company, you can ask to be refinanced and transfer your current outstanding balance to a different company. In this way, you could potentially save a lumps sum amount off of your interest payments as different companies offer different rates.

Also in a lot of cases, when you refinance your loan, there’s a period of zero interest applicable on your debts. In this period, no additional interest is charged on the amount you owe and you could even try to clear your whole outstanding balance before this period runs out.

You can try to get a management plan for your debts. In this case, you won’t have to deal with the creditors yourself; instead, your counsellor will do it for you. 

Your counsellor, being aware of the legal proceedings related to loans can turn the tables for you on your debts. He might be able to convince your creditors to lower your interest payments, waive off any additional fees or even go for a settlement.

A settlement is when your creditor agrees to get a smaller amount than the original amount owed. This is in the case when you agree to pay this smaller amount in a whole at once. 

The lump-sum payment of this amount convinces your creditor to just take it rather than dealing with the hassle of chasing you for the loans you owe. A settlement is also a good idea if you have the ability to pay the lump sum amount demanded by the creditor in full at once.

The last option to consider is filing for bankruptcy, but a lot of thought should go into the process before taking this step. More information on filing for bankruptcy is given at: 

https://www.gov.uk/government/publications/guide-to-bankruptcy/guide-to-bankruptcy

Remortgage to Clear Credit Card Debt – is it Possible?

Yes, in fact, credit card loans are the debts that are remortgaged most often. This is because with credit card debts come a big interest payment attached with them. 

Due to the high interest, not paying your credit card’s debt could lead to you paying more in interest as compared to the original amount that you owe. This can be unsettling because interest isn’t even the amount you owe to your lender.

If you renegotiate with your mortgage lender to include a higher amount, you could potentially save these extremely high interest payments and pay up smaller interest payments over a longer time. 

Since you already owe the mortgage and only need to negotiate a larger amount, it shouldn’t be that big of a problem. It can actually be a good idea to do this as mortgage debts usually have low interest payments attached to them.

FAQs

How much debt can I consolidate?

You can consolidate multiple debts into a single big loan. There’s no upper limit on the amount you can consolidate but be careful as nonpayment of your loan can lead to you losing ownership of your house.

Don’t hesitate to call the National Debtline or a finance professional who can give you an educated opinion on what to do in your situation. Every decision is different for every person because of their financial situation so the same advice doesn’t exactly apply to everyone.

Is debt consolidation generally a good idea?

Yes, it is generally a good idea to consolidate your loans into your mortgage. But keep in mind, that if you are unable to pay the new amount in full, you will lose ownership of your house as well. 

This is why you need to contact a professional as soon as you can or get free help to see what the best option is in your situation.

Does remortgaging affect my credit rating?

No, remortgage does not have an effect on your credit rating. However, when you ask for a remortgage, the creditor will definitely look at your existing credit rating and make a decision based on whether to give you a higher loan or not.

Taking a mortgage doesn’t affect your rating but not paying it definitely does. So make sure you can meet the new monthly payments of your remortgage deal so that you do not suffer more at the hands of your debts.

Can I remortgage my house?

Yes, you can remortgage your house and ask for a higher value against your house. This can be done either to consolidate your loans or to release equity from your home and give you some extra cash to tap into from the equity your house has built over time.

What are the disadvantages of remortgaging?

One of the main disadvantages is that you can potentially lose your house if you fail to pay off your mortgage amount and its ownership will never be transferred to you. Moreover, you’ll have a longer period over which your mortgage payments will be stretched for you to pay.

Also, there’s a fee attached to remortgaging, which might make you spend the money you plan on saving by negotiating a lower rate of interest. Plus, the remortgaging process takes a lot of time, so you need patience to see it through to the end.

Finally

Taking loans is unavoidable in today’s world. The price of everything is stacking up and it is almost inevitable to take a loan to financially do better and be at ease.

Just know that there are a number of different options that you have even if you’re knee-deep in debts; there’s always a way out.

Plus, if you need free debt advice, you can contact National Debtline.

Keep reading our articles to find this way out and make sure you reach out to us at the given email address if you have any additional issues or concerns that need to be addressed.

Good luck!


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