Why remortgage your house to consolidate your debts?
Remortgage and consolidate unmanageble debts
In the current economic climate there are a lot of people who have a multiple debts due to loans from a range of different sources that could include credit cards, store cards and finance agreements for the purchase of cars, furniture etc.. Consolidating these debts is definitely a good idea if you are finding the multiple payments unmanageable, however consolidating them by remortgaging and incorporating them into you mortgage is not necessarily your best option.
Why is consolidating debt into your mortgage a bad idea?
The main reason is it a bad idea, is also the reason it makes this option look like a favourable one when you are struggling to pay all of your debts, and that is the length of the term over which you would repay the debt. With most mortgages offering you at least 25 years as an upper limit on the length of your mortgage you can add your current debts onto the mortgage and then have 25 years to pay them off. However, if you consider the cost of doing this you may well thing twice about doing this.
Paying your debts off over 25 years, even at a fairly low interest rate is going to lead to you paying significantly more in interest over the years than if you consolidate your debts into one single, higher interest rate, loan that you then pay off over a much shorter term. If mortgage interest rates remain low, you could expect to pay around twice as much interest as you would if you paid off your debts through an alternative debt consolidation method. If interest rates increase to 7% or 8%, you could find that you pay significantly more than this.
Unsecured against secured loans
Secured debts can be more risky
Something else that you need to consider is that your smaller debts are likely to be unsecured. In contrast to this your mortgage is secured against your house. What this means for you is that if you regularly miss payments on an unsecured loan you will, at worst, have possessions seized by bailiffs. If you regularly miss payments on your mortgages you will then have your house repossessed and you will find yourself homeless. Therefore there can actually be more risk in consolidating your debts into your mortgage than using alternative debt consolidation measures.
Get expert advice
Getting good advice is essential
Before you make any sort of decision about consolidating your debts into your mortgage you should seek expert advice. Your very first stop should be with a debt counsellor who will be able to help you go through all of your options in order to identify the best one for you that will give you the greatest chance of being able to keep up with the payments and paying off your debts. In a few cases it may be that the only way to consolidate your debts into a manageable payment is by using the long term option of a mortgage. In this case you will need the professional services of a mortgage broker because you are likely to have a poor credit rating if you are struggling with debt repayments. A mortgage broker specialising in mortgages for people with bad credit will be able to provide you with the options that are available to you along with realistic advice about the sort of interest rates you will have available to you. They will also be able to identify suitable products for you and will also support you throughout the application process.
Don’t be tempted to go it alone
Remortgaging can be complex enough when your circumstances are straightforward, but if you have any special circumstances, such as being self-employed or having a poor credit rating, the remortgaging process is even more complex as there will be products that are unavailable to you, particularly those with very low interest rates. So unless you have a lot of experience in the mortgage business, it would be foolhardy to attempt to consolidate your debts into your mortgage on your own. This is especially true since April 2014, when stricter processes were brought into play to reduce the risk to lenders, which effectively makes it a little more difficult to get a mortgage.