Debt Consolidation Mortgages Explained

11/07/2022 09:32 | Mortgage Advice
Debt consolidation

Debt can take a huge toll on our mental and emotional well-being and can wreak havoc with our sense of stability and security. If debt is holding you back and impacting the quality of your life, a debt consolidation mortgage could help you to take back control.

Today, we’re going to be taking a look at how debt consolidation mortgages work, and considering what the drawbacks may be. So, let’s dive straight in.

What exactly is a debt consolidation mortgage?

Debt consolidation mortgages enable you to take out a single loan from the available equity that you hold in your property. This loan is then used to help you to pay off any debts that are weighing on you, such as credit cards or overdrafts. Homeowners tend to opt for debt consolidation mortgages in order to reduce their overall monthly payments and ease the pressure that these debts place on their finances.

While another viable option is to sell your property and use some of the proceeds of the sale to repay debts, you may not wish to do this. For those who want to continue living in their current home, debt consolidation mortgages (or re-mortgages as they are also known) can be a great option.

The application process for this type of loan is similar to that of a standard mortgage. The emphasis, however, is on the amount of equity that you own in your property. If you have paid off a considerable chunk (or all!) of your mortgage, or if your home has increased in value over the years, then you ought to possess a good amount of equity. Doing so puts you in a stronger position when you are looking for potential lenders.

Debt Consolidation Mortgages Explained

Why opt for a debt consolidation mortgage?

Many homeowners find that taking out a debt consolidation mortgage works out cheaper for them on a month-by-month basis. This is because unsecured debts tend to have much higher rates of interest in comparison to secured loans.

So, with a debt consolidation mortgage, you could get a far better rate than if you continued paying your loans back separately, or if you were to take out another unsecured loan in order to repay your outstanding debts.

How much can be borrowed and what are the best loans?

There is no ‘one size fits all’ when it comes to which debt consolidation loan is best, and what will work most fruitfully for you depends on your unique circumstances and needs. Speaking with an independent financial adviser will enable you to find a solution that best serves your situation.

There are many different reasons why you may have ended up in a position whereby you need to consider alternative options in order to clear your debts. In any circumstance or situation, however, there is support available. Here at The Mortgage Brokerage, we’re committed to offering that support, striving to help you find a solution that will best ease the pressures on your finances. When it comes to managing debts, expert financial advice is invaluable in helping you to find a viable way out.

Debt Consolidation Mortgages Explained

What are the drawbacks?

We would advise you to consider your options very carefully before taking out a debt consolidation mortgage.

Whilst the idea of having one, simplified debt with a potentially lower interest rate is very appealing, it’s important to remember that these loans are not without their drawbacks. For this reason, you should always seek professional advice first, before opting for a debt consolidation mortgage.

Some of the factors you ought to be aware of include:

  • By swapping out unsecured debts for a debt secured against your own property, you are inevitably putting your home at a degree of risk. It is up to you to decide whether or not you are comfortable with this and the possibilities it entails
  • It’s important to be aware of the fact that, while mortgage interest rates tend to be lower than those of unsecured debts, the terms of the loan are typically much longer. This means you may end up paying more in the long term, so it’s essential you weigh up the overall costs, rather than simply comparing rates
  • There may be cheaper alternatives that you could consider, such as balance transfer credit cards. Seeking professional advice will enable you to make the most cost-effective choice

Disclaimer: Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

Are financial stress and the pressures of debt taking their toll on your wellbeing? Get in touch today to find out how we can help you find the solution you are looking for.