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What is a debt consolidation mortgage?

A debt consolidation mortgage allows you to take out a loan using the stored equity in your property, and then using the released cash to pay off debts. This could be credit cards, loans, or purchase agreements. 

By releasing money that you’ve already paid off on your mortgage, you can reduce your debts elsewhere, or simply take the pressure off your monthly outgoings. 

This type of arrangement is also known as a debt consolidation remortgage.

How does it work?

A debt consolidation mortgage allows you to move all of your existing unsecured borrowings into one loan – your mortgage. Therefore, you only need to make a single monthly payment, rather than separate payments to different lenders with different terms and interest rates. 

To consider you for this type of mortgage, a lender will take a look at:

  • How much your property is worth
  • Your credit report
  • What debts you have
  • How much of your home you own outright
  • How much you want to borrow compared to your income

Some lenders will ask you to sign an undertaking, drafted by a solicitor, before they will agree to your mortgage terms. By signing this, you commit to repay your debts in full, but this may not be required depending on your income.

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What are the benefits of a debt consolidation mortgage?

There are many benefits that come with a debt consolidation remortgage; we’ve helped customers reduce their monthly outgoings, sometimes by thousands. We do this by securing a cheaper mortgage rate, whilst consolidating existing debts. Below are some of the ways you could benefit:

– Clear and consolidate costly debts such as personal loans, credit cards, and overdrafts

– Raise money for home improvements to add value to your property

– Find and obtain a better interest rate – simply put, this means you pay less interest

– Reduce your monthly mortgage payments, freeing up more money in the process

– Reduce your mortgage term

What are the risks?

As with any financial decision, it is important you consider the implications that come with adding debt to your mortgage. Paying it back over a longer time means you will likely pay more interest, and securing debts against your property puts your home at risk if you miss payments, and it reduces the equity stored in your property.

Is a debt consolidation mortgage a good idea?

Before you make any financial decision – especially one that is tied to your house and mortgage – we recommend that you speak with an expert, and to consider all your options carefully before committing. 

It may be enticing to consolidate debts from many into one, but it’s not without its potential drawbacks. Here’s what you need to consider:

– Changing unsecured debts, such as credit cards and loans, into a secured debt against your property puts your home at risk if you can’t keep up with monthly repayments

– Potentially cheaper alternatives are available, such as balance transfer credit cards. By working with a specialist mortgage broker, like Mortgage Experience, we can take you through every option to help you make the most cost-effective decision

– Although mortgage interest rates are usually lower than those attached to unsecured debts, by adding years to your mortgage, you could end up paying more in the long run. Rather than only comparing rates, weigh up the overall cost

– You may have to remortgage, which could incur additional fees

How to find the right deal for you

Getting any kind of mortgage can be stressful enough. Working with a specialist mortgage broker can help you get access to unique deals, as well as expert advice.

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