Debt Consolidation Mortgages

Financial difficulties can spring out of nowhere, often without warning, and get progressively worse if they are not redressed in a timely manner. Understandably, this is cause for a lot of stress and leads people to hastily search for an immediate way out so that they can start rebuilding their financial stability as soon as possible.

Whether you’re looking to repay a single unsecured loan, or even multiple loans, one such way to do this for existing homeowners is to borrow more money against their property than they initially had done. This option is represented by a certain mortgage type, collectively and specifically referred to as debt consolidation mortgages. It can be a very isolating experience to have monetary troubles, and this can sometimes make people shy away from external help. However, using one’s house to consolidate outstanding debts is more common than you may think at first, and many people on the property ladder utilise them shrewdly. Indeed, a debt consolidation mortgage could see you substantially reducing your monthly expenses, making it easier to budget and save in the long term so that you can get back on your feet expeditiously.

Having said this, although the prospect may already appeal to you on a surface level, you must unambiguously know that this is the right choice for you before you settle on a definitive decision. Of course, this requires you to thoroughly evaluate and assess your personal situation & financial circumstances so that you can reach a clear conclusion. Admittedly, this isn’t an easy thing to do, owing to the inherent intricacies of the matter. It’s for this reason why we highly recommend that you hire the services of an expert mortgage broker in order to help guide you through every step of the, often complex, way. We at The Mortgage Genie have financially assisted plenty of our UK clients by securing a debt consolidation mortgage for them. If you’re interested in joining those among our success stories then be sure to reach us at 01915809890 today.

Yet still, notwithstanding what we can do for you, it remains that there’s a lot to take into account when it comes to a debt consolidation mortgage. So that you’re able to fully inform yourself on the subject, we’ve put together this piece which goes over all the salient details you should be aware of before going down the route. We will cover:


What is a debt consolidation mortgage?

Although debt consolidation mortgages are named as such, they are actually a particular form of a remortgage. Remortgaging is a process available to those who have an existing mortgage or own a property outright. It is for people who want to take out a new loan while remaining in their current home. Disregarding the fact that a remortgage entails a fresh loan, you can decide to either stay with your current lender or opt to go with a different one. And even if you have a good few years left on your existing mortgage term, you aren’t obliged to remain tied to it for the entirety of the agreed-upon period. The correct decision here depends upon your individual circumstances.

People typically choose to remortgage when their existing contract is coming to an end so that they can avoid being placed on their lender’s standard variable rate (SVR). SVR’s typically come with relatively high interest rates, and therefore remortgaging at this point offers an opportunity to secure those on the market which are more competitive.

In regard to remortgaging for debt consolidation specifically, it is where you remortgage so as to access a sum of money which enables you to consolidate and pay any ongoing loans at once, i.e., rectify any outstanding debts you may have simultaneously. It’s worth pointing out that remortgaging is a very versatile process and can be used for a variety of reasons. For instance, people can remortgage to pay for home improvements and even remortgage to buy a second home.

How do debt consolidation mortgages work?

Generally, debt consolidation mortgages work by having your new loan be secured against an asset, namely, your property. That is, your home is used as security so that the lender doesn’t open themselves up to a substantial loss. And so, if you were to fail to keep up with your usual monthly repayments then you could lose your property as a result. Naturally, this is an extreme consequence and this possibility represents the primary disadvantage of a debt consolidation mortgage. As such, you have to be sure that you’re able to consistently repay the secured debt each month. This means accurately accounting for any additional fees and charges which may be implied too.

There are a few options you’ll have if you’re after a mortgage to consolidate debt. As we mentioned, you can switch to an entirely different lender if you want, or you can agree upon a new deal with your current mortgage provider. It all depends on who is willing to offer you the lowest APR, i.e., the deal where you can save the most money. Likewise, you don’t have to use your property as security. Instead, you can take on an unsecured loan where the lender has no claim to your financial assets, but can rather take you to court if you fail to regularly meet the contract’s terms instead. Albeit, it might prove harder to get an unsecured debt consolidation mortgage loan and these come with higher interest rates. Furthermore, if you’re happy with your mortgage’s current rates, and the alternatives aren’t favourable enough, then there’s the option to go with a second charge mortgage. Second charge mortgages are another type of secured loan against your property which allow you to retain your original mortgage.

Why would someone use a debt consolidation mortgage?

Debt can either quickly or gradually turn into a very convoluted issue. Whether you went all out on a new car, enjoyed a holiday beyond your immediate means, or having children has turned out to be more expensive than you might have anticipated. There are various reasons that lead people to search for a solution which has them square overbearing debt, and it isn’t always down to poor money management. Debt is one of those unfortunate aspects of life which can fall on anyone, at any time.

Regarding the specifics, debt consolidation mortgages offer a singular degree of convenience in that they simplify debt repayments. For example, if it’s the case that you have a number of debts such as payday loans, credit card bills, and overdrafts, all which have different interest rates, then a debt consolidation mortgage enables you to make repayments at the same time under one single set interest rate. In this way, debt consolidation affords financial organisation, which ultimately translates to lower levels of stress resulting from pressing debt.

Moreover, consolidating your debt into one neat, and more manageable, package can actually work out cheaper in the long term. Alongside making the individual payments easier to make, it’s possible that it also makes them more affordable, symbolising a win-win scenario. Evidently, one reason for this is because a single interest rate may total to being more favourable than many individual ones. But also because, on top of this, secured loans tend to have these lower interest rates we’ve been speaking about. This is especially the case if you have built up a sizable amount of equity in your property. That is, if you already own a considerable portion of your house, then it might be in your entitlement to make your monthly mortgage repayments smaller, given that you’ll have the ability to negotiate reduced payment terms with your lender.

If applicable, it can also make a lot of sense to release your accrued equity as a lump sum so that you can use it to pay off your debt and provide you with that all-important financial stability.

Pros and cons of a debt consolidation mortgage

As with any mortgage or remortgage, there are distinct sets of pros and cons which have to be weighed up. Debt consolidation mortgages aren’t excluded from these significant considerations, and so we’ve laid out both the advantages and disadvantages to amplify your perspective:

Pros

  • Can potentially decrease your overall monthly expenses comprising both mortgage and debt repayments, effectively saving you thousands in the long run.

  • Permits you access to more competitive interest rates, down to the new loan being secured.

  • Allows you to make use of your property’s value, relative to the amount of equity you have.

  • Makes debt repayments less confusing because they’re being paid to one sole lender, essentially giving you peace of mind.

Cons

  • You open your property up to the possibility of being repossessed if you fail to make the usual monthly repayments.

  • Can potentially end up paying more in the long term if you’re not careful despite payments being more cost-effective per month, given that mortgages often span many years.

  • If you’re currently locked into a mortgage contract and get out of it before your term is up then you could face paying a costly early repayment charge.

Whether each of these pros and cons will affect you in the future is purely based on any involved contextual factors. As such, it’s vital that you balance the probability of both the potential advantages and disadvantages of a debt consolidation mortgage occurring before going through with one. After all, simply asking a family member for help could turn out to be a more stable solution; it pays to take a sensible approach.

Can you get a debt consolidation mortgage with bad credit?

Yes, you can absolutely get a debt consolidation mortgage with bad credit. In fact, if you have a rather poor credit score, successfully making repayments on a debt consolidation mortgage can work to improve your rating because it indicates positive financial behaviour. Further still, it can actually prove easier to get a debt consolidation mortgage, as opposed to an unsecured loan, for the reason that one’s property serves as recognised security for lenders.

Having said this, your eligibility for a debt consolidation mortgage is ultimately determined by whether lenders view you as a suitable candidate. The way they come to a relevant conclusion is by carrying out the same inspection of you which anyone who submits a mortgage or remortgage application undergoes. Primarily, this consists of an affordability check and a hard credit check. In terms of affordability, it’s a general rule that lenders are prepared to offer up to 4x a household’s annual income. Additionally, mortgage providers will require proof of this income and want to examine your regular outgoings to ensure that you don’t spend your earnings frivolously.

The hard credit check is necessitated by the lender needing to scrutinise your personal profile. A hard credit check will return any instances of irresponsible money management present on your file. This includes if you’ve ever had a court county judgement (CCJ), an IVA, and if you’ve ever failed to meet payday loans or have claimed bankruptcy in the past. Evidently, the quality of your credit score will likewise be assessed. These checks are necessary because lenders need assurance that you currently exhibit behaviour which indicates a strong likelihood of your being able to comfortably keep up with the required monthly repayments. Any of the above will negatively impact the chances of your remortgage application being accepted wherein a lender might reject you, however, if they occurred over 6 years ago then their severity may be mitigated. If you do have bad credit and are determined to get a debt consolidation mortgage, then it’s worth noting here that a mortgage broker will be able to give you any required support by finding the deal that’s right for you; bear in mind that there is a mortgage solution out there for everyone.

If you want to get an idea of your current eligibility before you apply, then you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you spot any mistakes and possible fraudulent activity on your file so that you can correct problems without delay. The trial and subscription can be cancelled at any time.

We at The Mortgage Genie have an in-depth understanding on how to get a mortgage and are dedicated to helping people secure loans of all types. We sincerely hope that this piece has cleared up any doubts and concerns you may have had surrounding debt consolidation mortgages.

Each day we provide assistance for a growing number of people so that they can attain housing happiness by getting them a mortgage product which is tailored to their individual requirements, all while guiding them through every step of the process. If you’re in need of a team of expert mortgage brokers then don’t hesitate to contact us at 01915809890 and we’ll get you on the path towards a debt-busting mortgage solution. And why not see how much you could borrow up to today by using our mortgage calculator?


Company Information

The Mortgage Genie Limited is Registered in England and Wales with Company Number 9803176. The Mortgage Genie Limited is an Appointed Representative of PRIMIS Mortgage Network, a trading name of First Complete Ltd. First Complete Ltd is authorised and regulated by the Financial Conduct Authority. Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Depending on the complexity of your mortgage there may be a fee for our mortgage advice and arrangement service, which will be discussed and agreed before you make a mortgage application. A typical fee is £293 and will never be more than 1% of the mortgage amount.