How to Get a Low-Rate Debt Consolidation Remortgage Today

What Is a Debt Consolidation Remortgage?

A remortgage (also known as refinancing) is the process of switching your existing mortgage to a new one, either with your current lender, or with a new one.

A debt consolidation remortgage is when you refinance and release equity in your home for the purpose of clearing some debts.

You essentially pay off your current mortgage with funds from your new mortgage and you continue to use the same property as collateral.

People choose to refinance for various reasons, including:

• To change the type of mortgage you have

For example to switch from a variable to a fixed term mortgage.

• To obtain a better mortgage deal

Such as improved terms, payments, or interest rate

• To borrow more

You can borrow more money, using your home as security, and use those additional funds as you need to, including for the purpose of consolidating some debts.

Is a Debt Consolidation Remortgage the Right Move for You?

Getting a remortgage for debt consolidation purposes is a way to reduce or clear some debts, but this option should be thought about carefully before you take the plunge – and this option depends on a few factors;

Do you have enough equity in your home?

It’s important to realise that in order to be eligible for a remortgage, you do need to have equity in your property. Equity in this case is the difference between the value of your property and your outstanding mortgage amount.

What types of debts are you wanting to consolidate?

If you are considering remortgaging in order to pay off short-term borrowing then taking out a remortgage for debt consolidation may not be the best choice for you. Because of the long-term nature of a mortgage, you will most likely end up paying more interest over the life of the mortgage.

Have you explored other options?

A debt consolidation remortgage should be considered an option only after you have looked into other routes. Clearing debt by securing it against your home shouldn’t be your first choice ideally.

It’s wise to look into all your options to see which is the best avenue for you. For example, you could instead move your credit card balance to a lower-interest card, or you could take out a debt-consolidation loan.

Can You Be Refused a Remortgage?

Yes, it is possible that your application for a remortgage can be refused because the offer of a remortgage is at the discretion of the lender. When lenders are considering your application they will assess your financial situation as a whole, including:

• Your credit score

Typically lenders are looking for a healthy credit score, or at least a minimum credit score. However, there is no ‘magic number’ as the number varies according to the credit reference agency (CRA). The main three agencies used are Experian, Equifax, and TransUnion. Bear in mind also that different lenders look for different things.

• Your income

Do you have a steady salary with a regular payday? Is your salary increasing or has it declined recently? Do you get paid on a regular payday or perhaps you are a freelancer whose income is less predictable.

• Your expenditure

Your income will be assessed in balance with your outgoing payments. Are your monthly payments easily covered by your monthly income or do your outgoings exceed your income?

• Your debts

How much borrowing are you repaying? Do you have an overdraft, loans, credit cards, store cards or other debts? Are you steadily reducing your debts or just meeting the interest each month?

• Your reliability

Do you always make your payments on time? Missed payments reflect badly on your credit and are an important consideration for a potential lender.

• The value of your home

Has your property increased or decreased in value? Have you made home improvements or has the condition of your home deteriorated since you bought it?

• The equity in your home

Equity in your home is the amount that you have paid off against your mortgage and includes the current value of your home. If your home is worth more than you owe then you have equity which you could potentially release and use to clear other debts you may have.

A major thing that a lender will look for is to see if you can afford to make your monthly payments easily and on time.

Can You Remortgage a Shared Ownership Property?

While a shared ownership remortgage for debt consolidation may be possible it might be more tricky than a traditional remortgage. You would apply for a remortgage in the usual way, but you will need to find a lender who deals with shared ownership mortgages and meet their eligibility requirements.

Fewer lenders offer shared ownership remortgages so approaching a professional mortgage broker will increase your chances of success. Here at The Mortgage Broker we have a wealth of experience and contacts within the industry to help you find the best lender and the best deal for your unique requirements.

Summary

A debt consolidation remortgage is a way of releasing equity in your property so that you can clear other borrowing you may owe and add it to your new mortgage.

Obviously a remortgage for debt consolidation is not to be taken lightly and does have implications for your financial situation, both positive and negative.

The additional borrowing will increase the balance on your mortgage and this is secured against your property, putting your home at risk if you default.

Your credit score will temporarily worsen, however it should improve with time as you have cleared your old debts.

Consolidating several debts can make your finances easier to manage, with a single payment on the same day instead of several payments going out to different lenders on different days.

If you are looking to secure a remortgage to consolidate debt at any point in your mortgage journey, your chances are increased automatically by going through the process with a mortgage broker at your side due to the number of lenders they can explore.