Is it a good idea to consolidate my debts into a new mortgage?
Without speaking to an advisor it can be difficult to know the true overall costs and whether or not a debt consolidation mortgage is the right solution for you. It is important to consider the new overall interest costs of repaying your debts within your mortgage. It is also important to understand that whilst repaying debts within the mortgage can potentially save you money, it could also end up costing more in the long run.
What are the pros of a debt consolidation mortgage?
There are definite advantages to consolidating your debts into your mortgage. They include,
- Reduction of overall monthly outgoings
- The interest rates may be lower than taking a loan or a credit card
- It can help you return to savings each month
- You may end up paying back less interest!
What are the cons of a debt consolidation mortgage?
- You may end up paying back more interest
- It may take you longer to pay back your debt
- You will reduce the amount of equity available in your home
- Your home will be at risk if you fail to meet your repayments
How can I consolidate debt into my mortgage?
- Remortgage to a new lender
If you already have a mortgage, it may be the best option to shop around and move to a new lender who can offer a better deal when it is time to remortgage. For example, if you have an £80,000 mortgage and £20,000 loan by taking £100,000 with a new lender, you will be able to have one lower monthly outgoing which could be on a more desirable interest rate.
- Taking additional borrowing with your existing lender (further advance)
It may be that you already have a really good mortgage deal for your existing borrowing. In this circumstance taking additional borrowing with your existing lender may be a more suitable option so as not to sacrifice your existing rate.
- Taking a new loan with another provider (second charge lending/secured loan)
There are a number of reasons that you might struggle to get approved for a standard mortgage (first charge). For example; maybe your employment status has changed or you have an adverse credit history. In this circumstance, a second charge mortgage may be more appropriate. Second charge lending does not impact your existing borrowing and the barriers to entry are sometimes not as high as first charge lending.
What are the advantages of second charge borrowing?
- Good for people who have a poor credit rating or a history of adverse credit
- Can be an option for those refused a high street or first charge mortgage
- It won’t affect your existing borrowing
What are the disadvantages of second charge borrowing?
- It can be more expensive than first charge borrowing
- It may have higher fees than first charge borrowing
How can I reduce my monthly outgoings?
By consolidating debts it may be possible to reduce your overall monthly outgoings because the interest rates are generally more competitive. In some circumstances, a mortgage may also allow you to take your debts over a longer term than unsecured lending would allow; this can help to bring the lending down.
How can I repay my debt quicker?
For some people, paying back their debts quicker and more efficiently is the main objective of a debt consolidation remortgage. In this case you might decide to consolidate the debt into your mortgage and overpay your mortgage by the same amount and for the same term as your current unsecured deal. This would mean that you could pay back your loan at a more preferential interest rate and this could also have a positive effect on your overall mortgage interest rate and term.