Loan and credit card bills can spiral out of control
Debt consolidation remortgages are becoming ever more common. Using equity within a property to pay off debts.
Loans and credit cards can provide much needed financial help at various times of our lives. However, life doesn’t always unfold quite how we planned it to.
Credit cards in particular can end up becoming a thorn in your side if efforts aren’t made to clear the balance. Even with the best intentions, the main problem with credit cards is there is no structured repayment plan in place. This can ultimately mean that credit debts linger for a very long time. Especially if the person with the debt continues to add more debt to the card.
Recent case example - remortgaging to pay off debts
One of our existing clients had a mortgage review recently. However, this time they wanted to take some additional borrowing. They had built up some loans and credit cards over the last 2 years whilst renovating their new home. They now wanted to use some of the newly acquired equity, which they had gained following the home improvements, to pay off the debts.
How does it work?
Remortgaging to pay off other debts – debt consolidation. It is a process of increasing mortgage borrowing when remortgaging to free up funds to then pay off debts. This can be in the form of loans, credit cards, furniture finance, car finance – etc.
Adding unsecured debts of this nature to a mortgage may mean more interest is paid in the long term. This is due to the fact the mortgage term is probably much longer than the term of a personal loan. However, the interest rate would almost always be much higher on a credit card and there is no payment plan that will ensure the debt is cleared in a timely manner.
The immediate financial relief to the client is often the most important thing. After all, that’s almost always the reason why a client would add loans and credit cards to a mortgage. The monthly outgoings are spiralling out of control. Unless we can reduce the outgoings somehow they could be heading for a complete financial meltdown. That is the last thing anyone wants.
The difference in payments can be huge!
The clients in question has spent a substantial amount renovating their new home. Now it was time for the new home to pay them back.
The monthly outgoings on loans, credit cards, and the mortgage had reached £2,793. This was getting too high for them. We looked to remortgage and use some equity to pay off the outstanding unsecured debts. Leaving them with a much more manageable, single monthly payment.
Their new mortgage payment is now £1,727 – this reduced their outgoing by £1,066 per month. AND we maintained the same mortgage term of 23 years.
The old mortgage was at £328,000 over 23 years on a fixed rate of 2.24% – £1,517 per month
The new mortgage is now £378,000 over 23 years on a fixed rate of 1.99% – £1,727 per month
Very Happy Clients
We completed this case from start to finish in under 4 weeks. Which in itself is a great achievement. Needless to say the clients are over the moon.