'Debt-Free' Living: UK Homeowners' Roadmap to Remortgage Consolidation

It shouldn’t come as a surprise that since the cost-of-living crisis many homeowners across the UK are finding themselves in debt.?

We’re seeing a pattern of homeowners using the opportunity of their remortgage to consolidate debts.

Remortgaging to consolidating debt enables an existing homeowner to take all their other outstanding debts from the likes of credit cards, Klarna, cars and personal loans to combine them into one single monthly loan repayment – A mortgage.

Your chosen lender will assess the level of debt by looking at your credit report.

They’ll get an up-to-date valuation of your property to help them decide whether there is sufficient equity in the property, to provide enough new borrowing to cover all other debts.

You will usually be asked to sign legal paperwork where you commit to paying off the existing debts in full as soon as the mortgage is completed.

Should you remortgage to pay off debt?

If you have a mortgage, there are a few ways you may be able to use the equity you’ve built to consolidate other debts and better manage your finances into one single payment.

You must be a homeowner so you cannot consolidate debt into a new mortgage as a first-time buyer.

When deciding whether or not you should remortgage to pay off debt, you need to access both the risks and the rewards.

Risks and Rewards

Risks:

• Adding any additional borrowing to your current mortgage will mean a greater risk as should you become unable to repay the repayments your home will be repossessed.
• If you choose to extend your mortgage term with the additional borrowing then you will end up paying more interest overtime.
• Increasing your mortgage debt reduces the amount of equity you hold in your home.

Rewards:

• It can potentially reduce your overall monthly outgoings.
• The interest rates on secured borrowing are typically much lower than on unsecured borrowing
• It could simplify your financial management to repay all of your debts to one lender, rather than staying with multiple lenders, each with different rates of interest
• The process of consolidating debts via a remortgage isn’t too different to a standard remortgage.

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How It Works:

Much like other remortgages, a debt consolidation remortgage involves securing a new loan tied to your property. There are two primary avenues to explore:

?Full Remortgage:

Picture this – your new loan covers your existing mortgage AND any additional funds necessary for debt consolidation. Let's say your current mortgage balance is ￡100K and have debts of ￡50K. The new mortgage loan amount you will need to apply for is ￡150K.

Second Charge:

Here, you're securing an additional loan against your property, separate from your original mortgage. Using our example, if you opt for a second charge remortgage of ￡50K, you'll find yourself managing two loans secured against your property. This means juggling two separate monthly repayments – one for your existing mortgage and another for the new second charge remortgage.

It worth noting most lenders will require a legally binding document which states any additional borrowing stated to pay off debts will be done so in a set time period upon completion.

Speak To An Expert:

Debt Consolidation can be a complicated and tricky situation, we’d always recommend speaking to an expert for advice.

At UKMC we make sure you understand every stage process, we’re also committed to cutting out the legal jargon. Instead, our honest and authentic approach will make sure you understand all the ins and outs of your chosen mortgage deal.

Alongside using our convenient online contact form to reach out, you can also arrange an appointment with one of our experienced mortgage advisors by calling 01925 573328 or by booking your own appointment directly here.

*As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments. A debt consolidation remortgage is usually spread over a longer term than a personal loan therefore the total amount of interest you pay over the length of the new mortgage term will likely be more. It’ll be a condition of your mortgage offer that your agreed debts are repaid, typically by you, following your mortgage completion. You are changing the status of your debts from unsecured to secured against your home.