Remortgaging & Debt Consolidation
Nearly 50% of all remortgages that North Mortgages complete every year have some form of debt consolidation rolled into them. So let have a look at what debt consolidation is in more details.
What is debt consolidation?
Debt consolidation is the process of moving one or more types of debt into your new mortgage balance.
Why would I consolidate debt?
You would consolidate debt because the rate your interest you pay on some loan can be significantly higher than the rate you pay on your mortgage. This will usually mean your total monthly payments can be more expensive and what you rally want to do is reduce your total monthly outgoings.
How does it work?
Lets image your current mortgage deal is coming to an end and your looking to remortgage. You currently have a mortgage balance of £100,000 over a term of 18 years and an unsecured loan of £10,000 over 4 years. You also have £4,000 of credit card debt that you want to pay off.
Current Monthly outgoings:
Mortgage @ 4.98% = £711
Loan @ 9.7% = £261
Credit Card @ 24% APR = £104
Total £1,076 month
Monthly outgoings AFTER debt consolodation remortgage
New mortgage balance £114,000
New mortgage rate @ 4.65%
New monthly payments £790
Total Monthly Saving £286
Is there any downside to debt consolidation?
Obviously nothing comes for free and as you're now financially better off by £286/month or £3,432 per year. Most people would argue that any downside has been mitigated because they're so much better off. However we have to consider the facts and the implications are this:
You have effectively changed short term debt into long term debt which means over the term of the mortgage you will pay more money back in interest payments. Apart from that, there are no other negatives to be aware of when consolidating debt through a remortgage.
Who does this and is it right for me?
Typically anybody who is looking to reduce their monthly outgoings or somebody who is struggling with their monthly mortgage payments tends to consolidate debt.
Speak to one of our mortgage experts who will help you decide whether it the right thing to do for you.
For more information see the following resources from our Manchester Mortgage Brokers:
