Remortgage
A remortage debt solution is taking multiple unsecured debts and adding them to debt secured on a property
Remortgaging is when you replace your existing mortgage with a new one. This could be with your existing Lender or a new Lender.
There are a number of reasons to remortgage your home. You may be able to get a lower interest rate and save money on your monthly payments. By reducing your mortgage payment, you create more room in your budget.
Many fixed mortgage deals last between 2 and 5 years, after which the interest rate usually increases. If your current deal has ended or is close to finishing, remortgaging could help you avoid an increase in interest, which in turn could mean an increase in your monthly payment
You can also remortgage your home to release equity. If you have paid a significant amount off your existing mortgage, remortgaging allows you to release a tax-free lump sum, which you could use to pay debts off and reduce the number of monthly repayments you make to creditors. For example, if your home is worth £300,000 and you still owe £200,000 on your mortgage, you could remortgage for £220,000. This would release a £20,000 lump sum that you could then use to pay other creditors.
If you are in a difficult financial situation, remortgaging your home could be an effective way to manage your debts. However, it is not always the best option and it is important to consider current interest rates and other factors when making your decision.
Important: In most cases, the interest rate on your mortgage will be lower than other debts like credit card debts or unsecured loans. The mortgage is secured against your home, so the interest rates are lower and that potentially means lower monthly payments.
If you are struggling to pay off several high interest debts, remortgaging your home to consolidate them can make things more manageable for you.
Remortgaging could reduce the cost of your borrowing but be wary of the possible consequences of turning all your unsecured debts into one debt secured on your home.
Can I Remortgage to consolidate my Debts?
If you have enough equity in your home, remortgaging to release funds and pay your other creditors can be a good option for you.
By paying off your unsecured debts in this way, you have effectively replaced your previously unsecured debt with secured debt. As with any secured debt, your home is at risk if you don’t keep up the repayments on it.You should assess your finances carefully and ensure that you can comfortably afford the new mortgage before consolidating your debts in this way.
Your ability to remortgage and the rates that you are offered are all determined by the mortgage lender. If you are behind on debt repayments and your credit score has been affected as a result, you may not be able to get a mortgage with a good interest rate. If you are unable to get a good deal on a new loan, remortgaging may not be your best option. There may also be arrangement and settlement fees to pay when remortgaging and these need to be taken into account when you are making your calculations.
The value of your home has an impact too. It is likely that the value has increased since you bought it, but that is not always the case. If the value has decreased, your borrowing power is reduced and you may not be able to borrow the amount that you need to release equity in your home.
The Lender will look at your loan-to-value ratio (LTV) when deciding how much they are willing to lend you and what the interest rate will be. This value is calculated by comparing the total value of the property with the amount you still owe on your current mortgage. So, if you still owe £150,000 on a property that is worth £200,000, your LTV is 75%. The lower your LTV is, the lower the interest rate will usually be, so if your property value drops and your LTV increases, you will find it harder to get a favourable interest rate.
Before deciding whether to remortgage or not, weigh up the advantages and disadvantages and consider other ways to manage your debts.
Advantages of Remortgaging
If you have a lot of unsecured debts that you are unable to pay, remortgaging could be a good solution. You may be able to release equity to pay off some or all of those debts, resolving your financial problems without resorting to a formal insolvency solution like an IVA or bankruptcy.
Remortgaging is particularly effective if you are struggling with multiple high-interest payments to different creditors. By remortgaging and using the money to consolidate the debts, you reduce the number of payments that you have to make which can make managing your finances a lot easier.
Another benefit of remortgaging could be that your monthly repayment is lowered, if you decide (and are able) to extend the term of the mortgage. Even if you aren’t able to release any equity to pay off your existing unsecured debt in one go; reducing the monthly repayment could help you to manage your debts more easily.
A remortgage can be a good way to solve your debt problems without resorting to formal insolvency solutions.
Disadvantages of Remortgaging
The biggest disadvantage if you decide to release equity from your home and use it to consolidate those debts, is that it is now secured against your home. Failure to pay your mortgage could result in your home being repossessed. If you are already in financial difficulty will you be able to afford the new mortgage? It is crucial that you are sure about your ability to pay before you use remortgaging as a way to consolidate your debts.
You may not be eligible for a remortgage in the first place. Lenders will assess your finances and run credit checks before deciding whether they are willing to give you another mortgage. If you have poor credit or your income is not high enough, they may refuse to lend to you. If they do give you a mortgage, the interest rates could be higher than for somebody with a better credit score, so you won’t benefit from remortgaging anyway. You need to speak to mortgage lenders or go through a mortgage broker to determine whether you are eligible for a new mortgage and whether you can get a good deal or not.
Many mortgages come with early settlement fees and other charges too. You must consider these additional costs when deciding if a remortgage is right for you. In some cases, the fees may counteract the savings that you are making by taking out a new mortgage. Early repayment fees can also make the loan less flexible than your existing debts, which will allow early repayment.
If you have been struggling to pay your creditors, which has impacted on your credit score, remortgaging may not be an option. Some solutions, such as an IVA, will allow you to achieve debt relief whilst protecting your home.
You will be making one monthly payment on one loan rather than many payments to different creditors.
Your monthly payments may be lower, or at least should not be any higher.
We do not currently offer secured lending products. You should seek advice from an independent financial advisor before considering any form of equity release.
We can assess your situation and explain the other options available.
While there are benefits to consolidating several unsecured debts by remortgage, there are also important considerations you must take into account.
You must be a homeowner with sufficient equity to cover the amount of the remortgage.
You may have to pay fees for arranging the remortgage. Always ask for full written details of all fees.
If you have a poor credit rating, you may not be able to get a remortgage or you may be offered poor terms and conditions, for example a high interest rate.
Interest rates often change over the loan period, making it difficult to work out what the total cost of the loan will be – check if the interest rate is fixed or variable.
Remortgages are often over a longer period than your original debts. So, even if the interest is reasonable, the time you take repay it can increase the overall cost of the loan significantly, so you end up paying more.
Frequently Asked Questions
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Can I remortgage with a bad credit history?
You can find mortgage deals if you have a bad credit history but they are likely to be less favourable than if you had a good credit history. The interest rates may be higher, so if you are looking to reduce monthly payments and free up more money to pay creditors, you may need to improve your credit first.
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Can I remortgage when on a fixed rate?
Yes, you can still remortgage if you are on a fixed rate mortgage. If the fixed rate term is not up yet, it is important to check the fine print in your contract. Often, the lender will charge Early Repayment Charges (ERP’s) and exit fees if you take out a new mortgage before the fixed rate term is over. Sometimes, it is still beneficial if you are going to make significant savings on your interest rate. But you need to compare the potential savings with the cost of ending the mortgage early to see what your best option is.
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Do I need to pay capital gains tax on a remortgage?
No, capital gains tax is only payable when the property is sold or transferred. As you are still the owner of the property, you do not need to pay capital gains tax when you remortgage.
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Does a secured loan affect remortgaging?
If you have another secured loan against your home you can still remortgage but your options may be limited. Lenders will consider this other debt when deciding how much to lend you and what interest rate to give you.
When you remortgage, you have two options for dealing with the secured loan. You can borrow more money on the new mortgage to pay off the secured loan along with your other debts. Alternatively, you can keep the loan and continue making repayments separately from your new mortgage.
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Can I remortgage with a County Court Judgement (CCJ)?
Yes, you are still able to remortgage if you have a County Court Judgement against your name. However, it is recorded on your credit score and it has a detrimental effect, so you may find it hard to get a good deal. There are a few factors that affect you when trying to remortgage with a CCJ.
Firstly, lenders will look at how long ago it was issued and whether it has been resolved, meaning that you have paid the outstanding debt. The more time that has passed since resolving the CCJ, the less it will impact your mortgage application.
If you have multiple CCJs or the amounts are very high, this does not look good as it suggests you have a history of missed payments.
We Can Help You Today
For more information about how our services can help you please get in touch. We can:
- Speak to your creditor(s) and their collection agents.
- Fully inform you of your rights.
- If necessary, take steps to prevent legal action.
- Offer a full review of your situation and explain formal solutions to get you out of debt.