If you have several forms of credit – maybe a credit card, store card and personal loan – it may be hard to keep track of the various payment dates, balances and interest rates.
But it’s vital you keep on top of all your credit agreements, as any missed payments will have a negative effect on your credit history.
If you’re struggling to juggle all your payments, you may be considering a debt consolidation mortgage. But what exactly is this and how can it help?
Debt consolidation mortgage
You can find out more about debt consolidation and your options here. If you decide it’s the right move for you, one way of consolidating your debts is by remortgaging. By extending your mortgage, the extra money you borrow against your property can be used to pay off all your outstanding balances on any existing credit cards or personal loans.
Because you’ve cleared these debts, rather than making several different debt repayments each month, you’ll make just one. As a result, you may find that your finances become more manageable each month.
Can you afford it?
But before borrowing more money, you should work out whether you can afford the payments - including the interest - each month. One way to do this is by looking at your monthly budget.
Because you’ll be borrowing more money to pay off your debts, your mortgage repayments could go up. Alternatively, you could extend your mortgage term to keep them affordable.
By doing this, you may pay less each month than were initially paying on all your existing debts. Just bear in mind that the longer it takes to pay your mortgage off, the more interest you’ll pay to your lender overall.
Equity in your home
When you remortgage, lenders consider the equity in your property. This is what you borrow against. Lenders may refuse your application to remortgage if you already have a large mortgage and own little equity.
As you gradually pay off your mortgage, the equity that you build up will start to increase. This means that your loan-to-value – the balance outstanding on your existing mortgage compared to your property’s value – will decrease too. Having a low loan-to value means that lenders are taking less of a risk, which often means they’ll offer you lower interest rates.
Applying to consolidate debts by remortgaging
Your mortgage payment may well be your biggest monthly outgoing. So it’s important you’re confident you can afford it. This is particularly the case as you’re applying to borrow more in order to consolidate other debts.
As we said, extending your mortgage term may mean your monthly payments don’t increase even though you’re borrowing more. But this isn’t always the case, so you need to check you can afford your payments to go up. If you don’t make your payments, your home is at risk of repossession.
Weigh up your options
Choosing to remortgage is something you shouldn’t take lightly. Before borrowing more money to consolidate your debts, it’s vital to think about your financial circumstances and whether it’s the right option for you.
For example, you could consider a secured loan - also known as a homeowner loan or second charge mortgage. As with your mortgage, this type of loan is secured against your property. And if you don’t keep up with your repayments the lender has the right to repossess your home.
If you have several debts to pay off, a secured loan can help simplify your finances. Use the funds to pay off all your unsecured debts, and you’ll be left with one monthly payment to your secured loan provider.
There are other debt consolidation options, like a personal loan or money transfer card, but if you think this type of loan is the right option for you, you may consider using a broker, like Ocean, to find a suitable secured loan deal. You can find out more here.
Disclaimer: All information and links are correct at the time of publishing.