With personal and consumer debt rising in the last decade, many homeowners will need to look at ways of taking money out of their home to help service their debts. It’s not always as straight forward as simply remortgaging to pay off debt, as there will be caveats and considerations to take into account.
The bottom line is, a remortgage for debt consolidation isn’t right for everyone, so in this guide we will explain the different options available and what they involve.
Can you remortgage to pay off debt?
Yes, you can remortgage to pay off a debt, and it can be a good way to reduce your monthly outgoings. However, before you consider clearing debts in this way it is important to speak to an expert adviser to make sure that you are fully aware of the advantages and disadvantages.
For anybody who has a lot of different monthly payments, consolidating these into one simple payment can result in large savings on monthly commitments. Mortgage rates tend to be much lower than the rates charged for unsecured credit, also as you can often take the loan over a longer period of time which further helps to keep payments low.
However, you must also consider that if you remortgage to pay off debt and take a loan over a longer period of time then the total amount of interest you pay back may also increase.
Need Quick Advice? If you need help in finding an advisor specialising in a remortgage for debt consolidation, please complete our enquiry form now. We will put you in touch with an adviser who will consider all of your options and explain them in a clear, easy to understand way.
I need to reduce my monthly outgoings to help clear debt.
Reducing monthly outgoings is one of the more common reasons for people wanting to remortgage to clear debt. Replacing multiple monthly credit payments into one single payment can be more manageable and can result in reducing your overall monthly outgoings.
This is however only half the story, the total amount payable should also be considered and your adviser will assist you in working through the figures.
The below example for illustration purposes only shows how extending the term over which a loan is paid can increase overall interest:
As you can see from the above figures, extending the repayment term and reducing the interest rate can substantially reduce monthly payments, but may also increase the overall amount of interest paid. Working with a specialist adviser you can make the right choice for your individua needs.
Getting the right advice
It is vital that you get the right advice before deciding whether to remortgage for debt consolidation.
A specialist adviser is not only there to tell you how much you could save on your monthly payments. It also is the adviser’s job to explain the true cost of paying off debt, especially when you do so by extending the period over which you pay.
A good adviser will talk you through your options and base a recommendation on what they believe is the best option for you. They will take into account your specific needs and requirements when considering whether to add debt to your mortgage.
Do’s & Don’ts
- Do speak to a professional adviser.
- Do consider the overall cost of repaying credit.
- Do consider all alternatives, including debt advice from the government.
- Don’t just look at the monthly payment.
Can I remortgage with credit card debt?
Credit card debt is extremely common. A UK Finance report published in 2018 shows there were 58.6 million credit cards in circulation at the end of 2017 with almost 2 out of every 3 adults holding at least one card.
With 3.1 billion payments made on credit cards in the UK alone it is easy to understand the wide level of debt outstanding of approximately £70 billion.
According to The Money Charity, the average interest rate charged on credit cards was 20.7% as of February 2020. Additionally, the time it would take to pay off average credit card debt making only the minimum payment per month would be 26 years and 8 months.
Remortgaging with credit card debt is a possible option, and it may well reduce the interest rate you pay and result in a substantial saving in your monthly outgoings, but it is vital that you get the right advice and make sure that you discuss your full circumstances with a professional adviser.
An adviser will make sure that you have a clear picture of your options and that you understand the true cost of credit card remortgaging.
Can I remortgage with a debt management plan?
Yes, it is possible to remortgage if you are on a debt management plan. A new lender would want to see that you have maintained the payments on the plan in a satisfactory way. You would be required to obtain a statement of payments from the company managing your debt management plan and this statement should also show the outstanding balance.
You can remortgage to pay debt, where you have an active debt management plan. A debt management plan is typically an arrangement where your outstanding commitments are combined together with one debt management company.
The debt management company will contact creditors on your behalf and negotiate lower payments and reduced interest charges. This is a course of action only taken when somebody is genuinely struggling with the level of outgoings and as a method to avoid court action for non-payment.
The debt management company do make a charge for their services and entering into a debt management plan will have a negative effect on a person’s credit record.
Some mortgage lenders will allow you to borrow extra funds to clear your debt management plan completely so you should speak to an adviser to discuss if this is the best course of action for you.
A debt management plan is an agreement between you and your creditors to pay all of your debts. Debt management plans are usually used when you can only afford to pay creditors a small amount each month or you have temporary debt problems but will be able to make repayments in the future.
You can arrange a plan with your creditors yourself or through a licensed debt management company for a fee. If you arrange this with a company, you make regular payments to the company who then shares the money out between your creditors.
How to remortgage for debt consolidation with bad credit
It is possible to remortgage and consolidate debt when you have bad credit.
First of all it is important to understand that just if somebody has experienced difficulties with their credit payments there may still be options to successfully apply for a remortgage to clear debt. There are many ways to describe “bad credit”:
- Adverse credit
- Missed payments
- Low credit score
- Poor credit score
- CCJ’s (read more)
- Unpaid credit
- Bad debt
- IVA – Individual Voluntary Arrangement
All of these phrases describe the consequences of somebody who has suffered a period of not being able to keep up with payments and can be considered “bad credit”.
When discussing remortgage options for consolidating debt with you a specialist adviser, they will need to understand the full extent of the credit problems and the reason behind those problems. The reason behind the missed payments is vital as a potential lender will want to establish how likely it is that previous problems could reoccur.
Generally speaking, specialist lenders will be more sympathetic towards applicants who have experienced a “life event”. A life event is an experience that would generally be considered as largely outside of the persons control, examples of this are:
- Death of a family member
- Severe illness of a close family member
In these circumstances a specialist adviser will work with you to demonstrate to potential lenders that your credit record was impacted because of something outside of your own control.
There are of course many other reasons why people get behind on payments and even when the reason may be less justified than those listed above an adviser can work with you to put a plan together to allow you to remortgage.
Your adviser will need to understand your reasons for wanting to remortgage to pay off debt and what it is that you want to achieve.
Remortgaging with CCJs or defaults
Again yes, it is possible to remortgage if you have had CCJs or defaults. A specialist adviser will be able to guide you on which lenders are sympathetic to people who have had CCJs and/or defaults.
You will need to provide your adviser with the following information:
- When did the CCJ/ Default occur?
- Who issued the CCJ/Default issued against you?
- Why were you unable to make payments to prevent the CCJ/Default?
- How much was the CCJ/Default issued for?
- Is the CCJ/Default satisfied?
Armed with this information your adviser will be able to research your options. Some lenders will offer a mortgage to somebody with CCJs/Defaults which are over 6 years old, other lenders will require them to be 3 years old and some consider those issued in the past 1 or 2 years. The research carried out by your adviser will find out which lender’s criteria best fits your needs.
If you have had a CCJ registered very recently it may be possible to pay it off and have it removed from your credit record, but only if you move quickly. If payment is made within one month of the judgment, then all details will be removed from the register so will not appear when a lender carries out a credit search.
In some circumstances CCJs can also be cancelled or ‘set aside’. If you believe that a CCJ was issued in error or you can demonstrate beyond doubt that you were not aware of the CCJ, for example, because of moving home and missing letter then you can apply to have the CCJ set aside.
How to get a remortgage with bad credit
Okay so what is the first step to getting the remortgage for debt consolidation you need when you have poor credit? The answer is that a little preparation on your part will help enormously. If you make sure you have certain details ready before you speak to an adviser, then this will save time and help the adviser make realistic enquiries on your behalf. The more accurate the information that you give to your adviser the more accurate and efficient they can be with finding the right mortgage for you.
The below checklist is the minimum information that you would need to provide for each individual borrower on an initial call:
- How much are you looking to borrow to remortgage to pay debt?
- What is the value of the property?
- How much is currently owed on mortgage?
- Give accurate details of your credit problems including amounts and dates.
- If either applicant is employed what is their basic salary?
- If either applicant is self-employed what was the most recent years net profit?
These minimum details give your adviser an immediate idea as to your potential options and lets them complete a full fact find. This will include your details and requirements in order to carry out meaningful research on your behalf. This will be your first step towards a mortgage.
If you need to talk about how you can remortgage to pay off debt, please contact Specialist Mortgage Online today for a no obligation consultation.
Sometimes a debt consolidation loan doesn’t make sense!
A professional adviser will work with you to decide if a consolidation loan is right for you.
A credit card debt consolidation will not make sense if:
- you cannot afford the new loan payments
- you end up paying much more overall
- you would be better off rearranging your debts rather than taking a new loan
You should always consider the downsides along with the advantages of a consolidation loan mortgage secured on your property. Consider what could happen if your circumstances changed meaning your home could be at risk if you do not keep up with repayments.