Whether out of necessity, precaution or having the time due to lock down, people are reviewing their finances. Many people see a remortgage as a sensible way to restructure debt, but there are things to consider.
Yes and no.
Yes, it will more than likely reduce your monthly payments. You could therefore technically argue that you have ‘saved’ money on a monthly basis.
However, as you could potentially be paying the debt back over a much longer term, it’s likely you will be worse off overall.
This is an important factor when considering this approach. We would usually recommend a mortgage that has an overpayment facility which could be used to reduce the impact.
An important consideration is also taking a debt that is unsecured and securing it against your home.
If you don’t pay your credit card or loan, you’ll probably have a default or county court judgement (CCJ) registered against you. If you don’t pay your mortgage for long enough, you could lose your home.
As long as you can comfortably afford the monthly payment and are insured should the worst happen, this shouldn’t be anything to be afraid of. However, it’s definitely something to be mindful of.
A good place to start is to review your finances as a whole.
Get your last 3 months bank statements and a copy of your latest credit report. Have a look at your income and expenditure so see if you can cut back on anything. If so, could these funds be used to repay debt?
Can family help? Do you have anything you could sell?
If finance is required, would an unsecured loan or 0% credit card deal be more appropriate?
There are a few alternatives that could be considered and this is where independent financial advice could help.
After you’ve reviewed your finances, considered alternatives and had independent advice, if a mortgage is the best way then preparation is key.
At the time of writing, there is no question that arranging a mortgage is harder than ever. Lenders will be looking closely at all borrowers, but particularly those looking to repay debt as they will be looking at how each person manages their finances.
In addition, each lender from across the whole of the market has their own criteria around debt consolidation. Whether it’s loan to value restrictions or debt to income ratios, you need to know how each lender works in order to secure the best outcome.
The good news is that there are options available, but speaking to a mortgage specialist will help get the best result.
There is no doubt that debt consolidation has its place and can be a valuable approach in helping people get control of their finances.
However, every person and every lender is different. Independent advice is crucial in making sure this is the right approach for you and securing the best mortgage.
For a FREE consultation with no obligation, please contact us and we will be happy to help.