You might think that buying a new home and managing debt are two very different things and in many ways, they are. In particularly it’s the feelings attached to each that is different with buying a new home being very positive and debt management not so.
I hate breaking it to you but the reality is that having debt and using money we don’t have to consume has become an acceptable practice. This means that the burden of debt is a familiar problem in many households affecting credit rating and cashflow management. This is why I often recommend that clients look at their remortgage as an opportunity to consider their current financial situation so I can provide the best mortgage deal which might be different to the one you had before but it is tailored to your current needs.
However, using your mortgage for debt consolidation needs to weighed out carefully and I would not recommend that you jump into it lightly with no expert advice. It is not the best solution for everyone, and the interest rate may sometimes be higher which could mean that you pay more back overall. However, if you can afford the repayments, you have stable finances and you can control your spending, this could be an option for you. Here are some factors you need to consider first: Mortgages are secured debt, and while getting secured borrowing may sound better, it’s the lender, NOT you, who gets the security. This is in the form of its right to take your home if you can’t repay. You must be clear that by getting a bigger mortgage to pay off your credit cards and loans, you are effectively converting unsecured debt into secured.
- Credit cards and loans costs can be cut using other methods such as cheaper credit cards and alternative loans. In any case, you need to ensure that you way up all the options. Once you know the cheapest unsecured rate you can get it’s time to compare that to the cost of switching debts to your mortgage.
- Interest rates can change over the period of a loan, making it difficult to budget. Make sure the interest rate offered is ‘fixed’ over the term of the loan, – not ‘variable’.
- Read the small print carefully before taking out any loan – there may be hidden extra fees or charges.
- If you take out a loan for consolidation, pay off your existing debts in full, cut up your cards and cancel credit agreements in writing otherwise you might be tempted to use the cards to borrow more, ending up with an even bigger debt than you started off with.
This is another example of how mortgage brokers can help, I hope you have found this useful. If you are currently looking to remortgage get in touch, I will be delighted to speak further to see how I can offer you a tailored mortgage advice.
Your property may be repossessed if you do not keep up repayments on your mortgage.