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Remortgage

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Remortgage

Remortgages are often used as a way to consolidate numerous unsecured debts. 

The general idea is that you would apply for a new mortgage and hopefully increase the size of your re mortgage to release cash from the property. 

This cash is then used to repay numerous other, normally unsecured debts so that all you have to then pay is your one mortgage payment. 

However, there are down sides to this, not least of which, an unaffordable mortgage could mean losing your home. You must give very serious consideration to using your property as a way of resolving debt. 

  • Consolidate your debtPay just your mortgage
  • Pay less monthlyPotential for reduced debt repayment
  • Lower interestCan be much lower than unsecured debt

How does a remortgage work?

A remortgage is in its simplest terms, replacing your current mortgage with a new one. When you remortgage, depending on a number of factors such as equity and affordability, you may be able to borrow more money against your home. You will need to pay off the balance of your current mortgage but that may leave you with money to pay off your existing, unsecured debt such as credit cards, loans, overdrafts and many other lines of credit.
Consolidate Your Debts
You can use the money released from a remortgage to pay off your numerous unsecured or even secured debts.
Reduced Monthly Repayment
Because a mortgage is usually spread over longer periods of time, you may be able to reduce the total amount that you pay towards debt every month. See below for the downsides to this.
Potentially easier to get
If you have a lot of equity in your property and other factors such as affordability are in your favour then a remortgage may be easier to get than an unsecured personal loan.
Potentially improve credit rating
By paying off your unsecured debt in full and keeping up with your mortgage payment, you may see an increase in your credit rating which will help with later remortgages as you search for better deals.

Example of a Debt Consolidation Remortgage:

Everyones situation is unique. Below is an example of how a remortgage could work to help consolidate debt.

Before a Remortgage:

Total unsecured debt: £18,000
100%
Monthly repayments including mortgage: £1,643
100%
Number of creditors: 6
100%
Debt written off: £0
100%

After a Remortgage: 

Total unsecured debt: £0
1%
Monthly repayments including mortgage: £1,200
75%
Number of creditors: 1
16%
Debt written off: £0
99%

The downsides to a remortgage

As with all debt solutions, whether they involve borrowing or not, there are both pros and cons. With a remortgage you are using your home to deal with debt. This means your home is at risk which is obviously a huge consideration.
Not Everyone Qualifies
Remortgages that involve borrowing more money are not always available. If you are struggling with debt then there may be problems with credit rating, affordability and potentially a lack of equity.
An increased mortgage
Borrowing more money on your home will normally always result in an increase in your mortgage payment. You need to make sure that you can afford an increase.
You may end up paying more
Whilst unsecured debt such as credit cards or personal loans, typically have higher interest than a mortgage, they are normally paid back quicker. A 20 year mortgage could result in you paying back considerably more in interest than unsecured borrowing.
Your home is at risk
This is the big one. If you miss payments to your mortgage then your home could be repossessed. If you are borrowing more against your home, then you are probably going to end up paying more and potentially for longer. There are other options available so make sure that you explore everything before deciding on which way to go.
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