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Refinancing Debt Through Remortgaging

Refinancing Debt Through Remortgaging

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Using a remortgage to clear off short-term debts is a common strategy. This can reduce your interest rates, roll up your payments into one monthly charge, and help to manage multiple debts in a more manageable way.

Given that a remortgage is secured against your property, the interest rates are always going to be the most cost-effective option. The Revolution team works with hundreds of applicants every month who save a great deal of money, whilst reducing their monthly repayments significantly.

This guide collates all the most essential information about using a remortgage to refinance debt. For any questions we haven't answered, or to check out your potential borrowing rates, call the team on 0330 304 3040 or email us at info@revolutionfinance.co.uk.

How Does Remortgaging Work?

Remortgaging means you take out a new mortgage, either with the same lender or a different provider. The new mortgage pays off the old one, and your repayments switch to the new product.

The most significant factor is usually how much you can borrow and what interest rates you are offered. It is always advisable to keep an eye on your mortgage since for most homeowners this is the biggest outgoing they will pay.

Mortgages tend to run for 25 years or so, which means almost every homeowner will benefit from remortgaging at some stage. Refinancing or consolidating debt is one of the most common reasons to remortgage, but it can have many other positive impacts.

Can I Remortgage my Home to Repay Debt?

Provided you have sufficient equity, yes you can remortgage and increase the loan value to consolidate your debts.

Maximum LTVs (Loan to Value ratios) are around 90%. Therefore, if you have a property worth £100,000, you can borrow up to £90,000. In this scenario, if you have an £85,000 mortgage, you could consolidate another £5,000 of debt into that mortgage product.

Say your home is worth £200,000 and you owe £110,000, then you can borrow another £70,000 taking the total mortgage up to £180,000.

The below illustration highlights how your monthly repayments might change by consolidating debts:

Lending

Balance Owed

Loan Term

Interest

Monthly Repayment

Mortgage

£120,000

22 years

4%

£685

Credit Card

£6,500

N/A

22%

£120

Loan

£3,000

Four years

17%

£87

Loan

£12,500

Six years

15%

£265

Total

£139,300

 

 

£1,157

If you were to remortgage to include all of those debts, the situation would change as follows:

Lending

Balance Owed

Loan Term

Interest

Monthly Repayment

Mortgage

£139,300

22 years

4%

£795

This is purely an indicative scenario, but you could save £362 per month, and combine three separate forms of debt into your mortgage.

It's worth noting that although the monthly saving is £362, you might pay more in total given that the mortgage has a 22-year term.

Refinancing debt through remortgaging is mainly aimed at reducing your outgoings to a manageable level. In this illustration, we have used 4% as the interest rate, but it is possible to achieve a lower interest charge depending on what LTV you need.

Another option is to change the mortgage term to extend the time you have to pay back the borrowing.

This example shows the same mortgage on the same interest rate, but how the monthly repayment would change if you switched to a longer-term:

Lending

Balance Owed

Loan Term

Interest

Monthly Repayment

Mortgage

£139,300

30 years

4%

£665

Mortgage

£139,300

25 years

4%

£735

Mortgage

£139,300

20 years

4%

£845

Mortgage

£139,300

15 years

4%

£1,031

What are the Criteria for Debt Consolidation Remortgages?

To apply for a remortgage, you will need to find a lender who is happy to lend to the value you need to pay off your debts.

Each lender has a different policy on maximum lending, and some will limit the amount you can borrow for debt consolidation.

How Do Lenders Apply Remortgaging Eligibility Criteria?

Every lender has its own calculation process for affordability assessments. You will need to demonstrate that you can keep up with the remortgage payments.

Credit scoring is also part of the process. Again, the importance depends on the lender. Some will refuse any applicant with less than perfect credit history, and others may offer bad credit remortgage products.

In some cases, you can take out a debt consolidation remortgage even if you have adverse credit. However, you will usually be offered higher interest rates.

Revolution Brokers work with a vast number of lenders who offer competitive rates, including those specialising in the bad credit sector.

Generally speaking, a lender will take your annual income and multiply it by four to arrive at the maximum they will lend. Others work on a five-times salary basis, and others will lend more.

What Alternatives are there to Repay Debts Other than a Remortgage?

Remortgages are often most cost-effective, but you might decide to opt for a different debt consolidation product.

For example, suppose you have an excellent interest rate that isn't available anywhere else. In that case, you might be interested in a secured or unsecured loan rather than remortgage and lose your mortgage terms.

Secured loans are more expensive than remortgages. Rates range from 7% up to 30% and even higher, which usually depends on your credit history.

However, a secured loan can be taken out over a longer-term, and have fewer restrictions on affordability and LTV caps.

Unsecured loans are another option but tend to be just as high in terms of interest, ranging from 6% to over 50%. However, the term is limited to seven years and up to £25,000 borrowing, which does mean repayments will be higher each month.

Professional Advice on Remortgaging for Debt Consolidation

For more information about remortgaging to refinance debts, or to explore how much money you might be able to save every month, get in touch with the Revolution Finance team.

Give us a call on 0330 304 3040 or drop a message to info@revolutionbrokers.co.uk.

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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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