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Debt Consolidation Remortgage: Some Things to Consider

Sep 5, 2008
If you have several debts you are looking to repay, a debt consolidation remortgage could be the answer. It allows you to consolidate your debts as part of your mortgage terms - effectively adding your debts to your mortgage. It also enables you to repay the debts over a much longer period than an unsecured debt consolidation loan, or other debt solution, making repayments cheaper (although repaying what you owe over longer could mean you pay more in total.)

Will I be able to get a debt consolidation remortgage?

It's been well publicised over the past year that mortgages are harder to get than they used to be - a 10% deposit is all but a necessity, and lenders are being stricter about their lending criteria than in recent years.

Because they involve paying back both your mortgages and your debts, debt consolidation remortgages can be a little harder to obtain than regular mortgages. But with a sufficient credit rating, adequate deposit and a proven ability to repay it (i.e. good earnings), it's still quite possible to get a competitive deal.

As debt consolidation remortgages rely on equity withdrawal, the amount of equity you have tied up in your home will also affect your ability to obtain a debt consolidation remortgage, and how much more you can borrow to pay off the debt.

Your equity includes any deposit paid on the house, any repayments you have made and any increase in your home's value - essentially, it is the proportion of your home that you actually own. The more equity you have, the more equity you have the potential to withdraw - plus your lender will be more confident in your ability to repay.

Will it be affordable?

This really depends how big your debts are - i.e. how much extra you need to borrow. For example, if you have a mortgage for 100,000 and want to consolidate 50,000 of debts, you can expect your payments to go up by 50%. Consolidating 8,000 of debts on a 150,000 mortgage, on the other hand, would be much more affordable. If you are unsure whether your debts are too big for a debt consolidation mortgage, or want to know about other possible debt solutions, talk to an expert debt adviser.

Interest rates

Debt consolidation remortgages are offered at the same rate of interest as a regular mortgage - the only added expense will be the extra you borrow to pay off the debts you have consolidated into the mortgage.

This will vary depending on your circumstances: if the homeowner has a poor credit history, the interest rate is likely to be a little higher. Since the interest rate applies to the whole mortgage, not just the other debts, this could add up - so it is important to make sure you can afford the monthly repayments if you are going to take this route.

Other debt solutions

There are a range of debt solutions available to people in debt including debt management, debt consolidation, IVAs, Trust Deeds, & bankruptcy.
About the Author
This article is written by Melanie Taylor for Debt Advisers Direct. For debt advice & more information on debt consolidation, debt management & IVAs please visit debtadvisersdirect.co.uk
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