Today, remortgaging is seen as a way of securing better interest rates for monthly installments or securing funds for home improvements. What most people don’t know is that you can remortgage to consolidate debt. See, as a homeowner with a loan or lots of credit card bills that need to be repaid, it is possible for you to take the equity in your house and remortgaging to repay off the debt. Considering the seemingly ever-rising property prices and low mortgage rates currently in the market, it’s no wonder the homeowners tend to get tempted, as most of them struggling with debts, whereas they have a lot of equity in their property.
Let’s get real here for a minute, the process of remortgaging for debt won’t be easy at all, therefore, you should expect some barriers. Before the lenders give you the loan, they will consider your property’s value as well as your credit rating. Your credit file is what the lenders will use to figure out how well you can repay the loan, especially given the fact that you are already struggling with the repayments of some of your previous loans as well as your credit card bills. The truth is, this fact alone may work against you as it pushes your credit score down. And if your credit score turns out to too poor, the amount you can borrow against your house or the interest rate will be greatly affected.
So, what should you consider before remortgaging?
It is true that a majority of the homeowners struggling with debts see the equity in their property as an easy route to get some money to pay off their loans, but the thing is, not always is this the best idea. As we said earlier, the lenders take a lot into consideration before they actually decide to give you the mortgage. And since these people owe a lot of money, they may find themselves requiring more money to pay off these debts, which means they might borrow more than their outstanding mortgage. So, this is to say that, yes, you may pay off your other debts, but your mortgage loan will be higher.
So, with that in mind, the homebuyer also has several things to consider as well, before deciding to take another mortgage. For instance, the borrower needs to consider the rate and the time period for the new mortgage. You also need to consider all the fees applicable to the remortgage, including legal and valuation fees. If you put all this into consideration, ask yourself if it is worth it paying for a bigger loan for you to pay your existing debts, and also whether doing this will improve your financial situation in any way. These are important questions that need you to think really hard before making a decision. You really need to weigh all your options carefully.
But there is also some positive news: in the UK today, mortgage rates have dropped to a record low in the last couple of years. What this means is that borrowers can get mortgages at considerably low rates. Even though these mortgages are tough to find, they are there. And if you were to get your hands on such a mortgage, then the better for you. If you compare these mortgages with personal loans, you will find that the mortgage will be easier for you since the monthly repayments are way less.
To understand what it means, let’s take a look at this: according to the Bank of England, the average rate for a remortgage with a 40% deposit is 1.53%, while that of personal loans is was 3%. This means that you can borrow more if you take a mortgage than a personal loan. For instance, for a personal loan, you can only get a maximum of 50,000 pounds, which is where remortgages start. Lastly, the repayment period for a remortgage spread for over 20 to 30 years, whereas for a personal loan you are only given 3 to 5 years to clear.
Are there cheaper alternatives though?
However, remortgaging isn’t the only option you’ve got to consolidate your outstanding debts. There exist also alternatives. For example, you may consider a balance transfer credit card as it allows you to pay off an old card, and then move the remaining balance to another provider who will give you an interest-free introductory offer for three years. This way, you are able to focus on repaying the debt, rather than the interest for that period. Another alternative is the peer-to-peer platforms where you use personal assets as security for a loan. The platform conducts a review of the assets and decides the amount of money they would give you based on the value of the assets. But before getting there, why not review your income and expenditure first to see if there is a way you can budget better and reduce your spending. After all, money, like emotions, is something you must control to keep your life on the right track.