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6 Sep

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Many homeowners find themselves in debt at one time or another. Often being in debt can create a snowball effect, making it more and more difficult to repay what you owe as you accumulate even more debt! Additionally, you often end up paying high interest fees on unsecured borrowing. For those who are in debt and want to take steps to get out of it, a debt consolidation mortgage may be right for you.

During tough financial times, people usually create a hierarchy of bills in which less important bills are paid off last. Since your mortgage is a hugely important monthly bill, with severe penalties if you don’t make your payments on time, it’s far more likely to be paid each month, unless there’s absolutely no money left. By ignoring payments that are perceived as less important, your debt and interest will continue to grow. Consolidating your debt with your mortgage is a good way to make sure you aren’t neglecting other bills in favour of paying your mortgage off.

A debt consolidation mortgage means that you consolidate your debts with your monthly mortgage payment. You can take out a larger mortgage that will not only pay off your existing principal, but also include payments to existing debt. The benefits of consolidating your debt with your mortgage include:

  • Making it easier to create and stick to a plan to pay back what you owe.
  • Creating one single monthly payment. This keeps you from having to keep track of multiple payments, on multiple cards, and on multiple different dates. Simplifying your monthly payments can also help you plan ahead financially.
  • Decreasing the interest rate on your existing debt, which will allow you to pay off your debt faster.

There are two different ways of consolidating your debt and your mortgage. You can remortgage your entire debt with a new lender, or take out a new loan and attach it to your current mortgage. Choosing to remortgage means taking your total mortgage, adding it to your total debt, and paying them off with a single payment each month. The benefits of remortgaging include:

  • Only one single payment each month.
  • Potentially lower monthly payments, and lower interest rates than on standard or credit card loans.
  • You can often borrow more, and release more home equity.

If you are considering remortgaging, the best thing to do would be to speak to a mortgage advisor. There is a chance that remortgaging could lead to you having a higher monthly payment. To make sure remortgaging will actually save you money, and help you pay off your debts, it’s best to create a plan with a professional mortgage advisor.

On the other hand, you can keep your existing mortgage, which may be ideal if you have a good mortgage rate, and take out a secured loan for the debt you owe. This would result in having two mortgages for one property. This option typically has less regulations and more flexibility than remortgaging, which can make it better for those with more severe debt, or those who are self-employed and may have trouble meeting mortgage application requirements.

The benefits of taking out another loan include:

  • It is often available for those with poor credit scores or other issues that may hinder remortgaging.
  • It won’t affect your existing mortgage.
  • It is often available for those who may have trouble proving their income.

This option provides benefits for those who are more severely in debt, have poor credit scores, are self-employed, or have other issues that may affect their mortgage application. If you are able to remortgage, it is the better of the two options, as your rates will be lower, and it will mean just one monthly payment.

A debt consolidation mortgage may be right for you if you are struggling to repay all your debt, and want lower monthly payments. Even though you’ll see advertisements for them everywhere, it’s important to be wary of debt management companies. These are the companies that claim to help you reduce or get out of debt. However, these companies are often unregulated, and the advisors who work for them don’t have to undergo any formal education. They also make a large commission from putting clients into debt management programs, or from helping them declare bankruptcy. If you are concerned about your debt, it’s much safer to seek help from a professional mortgage specialist.

While it can help you cut costs and simplify payments, consolidating your debt with your mortgage is a potentially risky move. It should not be a regular occurrence, but rather something that is done when circumstances demand it. When you consolidate your debt with your mortgage, you are also putting your home equity on the line. Also, it can be difficult to apply for remortgaging, depending on the state of your credit rating and income. Since a debt consolidation mortgage can be tricky, it’s especially important to speak to a mortgage professional regarding your situation.

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