You may have heard of a Remortgage to consolidate debt. This article by McGregor Ross Financial Solutions sets out to offer some basic advice to consider before taking out a mortgage to manage your existing debts. We will look at the pros and cons of debt consolidation however please seek advice from us directly if this is something you are considering as this article is not designed to be an exhaustive guide.

Before making any decisions, we suggest you carefully evaluate the ramifications of combining your loans into a remortgage. The following points should be remembered:

Benefits of a Remortgage to consolidate debt

The act of merging all of your unsecured credit commitments (such as loans & credit cards) into a single monthly payment (such as your mortgage for example) can make managing your finances from month to month easier to handle and may seem like a logical decision especially if this consolidation reduces your monthly outgoings.  It is also very likely (although not guaranteed) that the interest rate you are consolidating these debts onto (i.e your mortgage) will be a lower interest rate than you are currently paying on your existing debts or lower than other methods of finance available (such as personal loans or secured loans) which can also seem very appealing.

Pitfalls to aware of

Due to the fact that you will be borrowing more than your existing mortgage to consolidate debts, your monthly mortgage payments will likely increase.  Can you afford to increase your monthly mortgage payments?  We will help you to go though your finances to assess your ability to pay, and advise you accordingly.

You may be extending the term of your mortgage to lower your mortgage payments, however this will spread out your debt repayment over a longer period and possibly result in higher interest costs overall.  You have to consider your age, and ability to pay in the future, plus any future long term commitments or life changes you might need to consider which could make a longer repayment term less attractive.  Even if the interest rate on your mortgage is lower than the rate on your existing commitments you are likely to pay more overall by stretching this consolidated debt out over the longer term which is why it is so important for you to get good advice before making such a decision.

Remortgaging may also incur costs, such as early repayment penalties on your current mortgage, legal fees, or valuation fees.  Changing the terms of an existing mortgage agreement can carry extra costs. Don’t worry too much about this yet though, speak to us and we will guide you and show you the best options to suit your situation.

Consequences of failing to make repayment

You risk losing your home if you don’t make your mortgage payments on time.  Due to your increased debt load, it might be more difficult for you to get credit in the future.  It’s important to be open and transparent regarding your finances when speaking to your broker, hiding information about your debts could leave you in a difficult position later down the line.

The psychological effects of debt consolidation should also be taken into account because they could offer you a false sense of financial stability and encourage you to take on more debt in the future.  If you decide to opt for a remortgage to consolidate debt you should consider taking steps to avoid accruing further debt, thus allowing yourself to build up financial security for the future.

Therefore, if you are thinking about remortgaging to consolidate your debts, it is vital to assess the advantages against the drawbacks and repercussions, as well as to get assistance from a knowledgeable mortgage broker and/or debt counsellor.

Get some assistance

At McGregor Ross Financial Solutions we will look at your overall financial situation and help to determine if debt consolidation is right for you.  Like many things, what can suit one individual may not necessarily suit someone else, even if they are in a similar situation.  Our experts are ready and waiting to take your call.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

You may have to pay an Early Repayment Charge to your existing lender if you remortgage

See our contact page for more assistance.