No matter how careful you are with money, it is easy to find yourself in debt and struggling to pay. The problem worsens as you continue to add to your pile of debts. It can prove difficult just to keep track of who you owe, how much, and when payments are due.
Falling behind with repayments only serves to magnify the situation. This is why many people consider remortgaging for debt consolidation. It enables them to combine all of their debts into a single and typically smaller monthly payment. However, remortgaging for this purpose isn't always beneficial and can lead to greater problems down the road.
It is almost inevitable that we will accrue some debt over the course of our lives. For most of us, it wouldn't be possible to buy items like houses and cars without borrowing money. What's more, offers from credit card companies and the promise of interest-free credit can lead to a pile of debts. One of the major problems with this is managing repayments.
Debt consolidation combines all of these debts into one. You only have to make a single repayment every month, and that repayment is usually lower than the combined total of individual debts. Many people consider remortgaging to be beneficial when consolidating debts because of the low-interest rates mortgages attract.
Remortgaging means taking out a new mortgage. It will replace your existing one and will have new repayments and a new repayment schedule. You may be able to remortgage with your existing lender or shop around for a better deal with other companies. You will have less equity in your property but you would only have a single monthly repayment to make.
A second mortgage does not replace an existing mortgage but runs parallel to it. You can borrow against the remaining equity in your home. If your original mortgage has very-low interest rates, this could be your best option. However, it does mean that you will have two payments to make each month.
Secured loans are secured against the equity in a property. These do attract lower rates than personal loans but your property is at risk if you fail to make repayments.
If you do decide to remortgage, you should start by speaking to your existing lender. You should have a good history of meeting repayments with them.
You should also shop around to ensure you get the best deal. Lenders launch new deals all the time, so you shouldn't assume that your existing company still offers the best deal. Do check whether you will have to pay for an early mortgage settlement.
There are some disadvantages to remortgaging for debt consolidation. Firstly, this type of financial product tends to attract higher interest rates than a standard mortgage. The lender knows that you have mounting debt, which means that they consider you a greater risk.
You should also consider the amount of time it will take you to repay the debt and the impact this has on the total you repay. 4% interest rates may look favourable compared to a 39% credit card, but 4% interest over 20 years is a considerable amount of money.
Remortgaging for debt consolidation will work for some homeowners. But it does saddle you with extra debt and increases the amount you pay every month for your mortgage.
At PropertyBuyer.co.uk we offer an alternative. We are a cash buying service, which means that we can finalise a deal in seven days. Even if you are behind with debt repayments already, you can have access to the equity in your property in a week and pay off debts.