Consolidate Debt By Re-Mortgaging

houses sitting on moneyIf you already own a property with or without a mortgage and you need to raise funds to repay outstanding debts like credit cards, personal loans or second charges this is known as debt consolidation.

Debt consolidation as the name suggests literally puts all your debts under one roof – your house – and is usually a way of reducing your total monthly outgoings.

You must think carefully regarding securing your debts against your property as you are switching unsecured debts such as credit cards and personal loans to being secured debts on your property and also reducing the amount of equity in your property and by taking the debt over a longer period of time the total charge for credit is likely to be higher.

However, if you have credit card balances outstanding and you are only paying the minimum monthly amount the balance in reality is not reducing that much on a monthly basis as the majority is interest to the lender, ie you are not repaying much off the capital to reduce the balance – also the interest rate charged by credit card providers varies and can be expensive.

AN EXAMPLE OF HOW DEBT CONSOLIDATION WORKS

House Value £ 250,000

Existing mortgage £ 150,000 Payment £ 600 pm

Equity £ 100,000

Total Credit card balances £ 15,000 Minimum Monthly

Payment £ 450 pm

Total monthly outgoings £1,050 pm

Re-mortgage property with new £ 165,000 mortgage to repay existing £ 150,000 mortgage and £ 15,000 credit card balances

House Value £ 250,000

New mortgage £ 165,000 Payment £ 800 pm

Equity £ 85,000

Total Credit card balances £ 0 Minimum Monthly

Payment £ 0 pm

Total monthly outgoings £ 800 pm

In the above example you have reduced your outgoings by £250 per month.

There are other ways of consolidating debt such as FURTHER ADVANCES, SECOND CHARGE LOANS and PERSONAL LOANS – these will be covered at a later date.

Please remember your home may be repossessed if you do not keep up repayments on your mortgage or loan secured on it.