Remortgage to pay off debt
Remortgaging to pay off debts is a common practice for many people. A second charge mortgage is one of the ways to borrow, this is why a lot of people will remortgage to release the equity in their homes. Remortgaging to pay off debt is a good option for people that have high interest credit such as credit or store cards. The remortgage is likely to be at a much lower interest rate which means you will have lower monthly payments and be paying off more of your debt not just the interest. Refinancing your debt can change your life and give you a chance to re assess your finances and stop you paying high interest rates.
To reorganise your finances in this way you must have enough equity in your property. At present the maximum loan to value is 90%. For example if your property was worth £200,000 then the total maximum borrowing (including your existing mortgage) would be £180,000. If your current mortgage is £150,000 then the most you could consolidate with be £30,000.
Qualifying for a debt consolidation remortgage
To consolidate your debt with a remortgage, you will need to make the same kind of application as for any remortgage. The only difference is you will need to apply through a lender that allows capital raising to pay off debts. This is where your expert advisor will come in they know the market and will be able to put your application to the lenders that best suit your circumstances.
There are various reasons why people remortgage and each lender has different criteria on how much they are prepared to lend depending on circumstances. You will also need to pass the usual credit assessment and be able to show evidence you can afford the new loan. Affordability for your mortgage varies from lender to lender and is calculated based on your personal circumstances. In general 4x your annual income is what most lenders offer and some lenders are willing to go up to 5x if all other criteria is met.
Other debt consolidation options
There are several other options that you can take in order to consolidate your debt but remortgaging is always likely to be the cheapest option. If there is a reason it isn’t possible to remortgage or you don’t want to lose your current rate on your mortgage then you can look into consolidating your debt with a secured or unsecured loan.
A secured loan is usually higher interest than mortgage rates but can be a good option if you have a less than perfect credit score and don’t want to lose your current mortgage rate. Rates can range anywhere between 7%-30% depending on your circumstances. Secured loan will be secured on your property and can be taken on a long term basis.