Should I use my mortgage for debt consolidation?

If you have multiple debts and you’re struggling to manage them you might want to consider a debt consolidation mortgage. If you have different loans and credit cards, you will have different interest rates. Managing all of those individual payments can leave you feeling overwhelmed. Varying interest rates can make it feel like those debts never go down. 

As a homeowner, you do have some options when it comes to managing debt. You can choose to have a secured loan to have a single payment. If you have equity in your home, you can remortgage and consolidate your debts. Whichever you choose you will be securing the debt against your home. Because of this, you will have to keep up with payments, so your home is not at risk.

Mortgage for debt consolidation

You may have taken out loans or credit cards to clear debts in the past. While you may think that this is the right thing to do again, you do have other options. Interest rates on credit cards and loans tend to be higher than mortgage interest rates. The best interest rates are on secured loans or mortgages. Because of this, you can transfer debts with higher rates to a mortgage to save money.

The repayments of the debt consolidation are spread over the term of the mortgage. Typically, your debt consolidation mortgage payment is the same or lower than your old amount. It makes it much easier to pay and manage your money going forward.

How a debt consolidation remortgage works

A remortgage will provide you with a lump sum of money. It can be used to clear debts, so you only have a single payment. Not only does it save you money in the long term, but it also makes it more simple to stay organised with your finances.

When you are looking at debt consolidation mortgages, you should consider:

· How much you need to borrow

· The repayment terms

· Interest rates

· Loan fees

How much can I borrow on a remortgage?

The amount you can borrow with a debt consolidation mortgage depends on several things. The lender will want to check into several factors before loaning you money. The bank will look at:

· Your income

· Possible payments you can afford

· Value of your home

A mortgage lender will look at something called the loan-to-value ratio. The number is the amount you want to borrow in comparison to the value of your property. It is usually a percentage number and gives the bank an indication of the equity in your home. When looking at these factors, the bank will then calculate how much they are willing to lend you.

Debt consolidation mortgage repayment terms

The repayment terms of a debt consolidation mortgage will be explained when applying for the loan. A significant advantage of adding multiple debts to your mortgage is a single payment. By only having one payment rather than numerous different lenders to pay, your finances are easier to manage.

Repayment terms will give you one fixed amount to pay each month. The loan advisor will go through your finances with you to make sure payments are manageable. A remortgage may have a slightly lower payment than your current mortgage because of the equity in your house. All of this will form part of the calculations so you will see this before applying.

A financial advisor will look at the full picture of your finances. Using an impartial expert will make sure you get the best advice. Any new financial commitments will need to be affordable, and an advisor will help with this.

Interest rates on remortgages

While adding debts to your mortgage may seem like the right move, you will need to have the full picture. Always look into the interest rates on debt consolidation mortgages. Paying the debt off over a more extended period of time may mean you ultimately pay more. However, consolidating debt with a mortgage is the best thing if you are struggling.

A lower mortgage payment will give you breathing space. You will be able to manage your money and have all of your debts under one payment. Of course, the best course of action will depend on how much you owe. Taking financial advice from an expert will help you find the right type of loan.

Loan fees for debt consolidation

The interest rate and repayment terms are important, but you will also need to look at other costs. A debt consolidation remortgage may have loan fees. The cost of the fees will vary, so make sure you know the exact costs of any loan. It needs to make sense overall, so higher loan costs may not be suitable for your situation.

Make sure you are aware of all the cost and loan arrangement fees before you agree to the loan. The lender or financial advisor will give you all of this information.

How do I consolidate debt onto my mortgage?

When you are looking at remortgage offers, there are usually two options for debt consolidation:

· Moving the debt to a new lender

· Securing a loan to your current mortgage

If you choose to remortgage your total debt with a new lender, you can usually borrow a higher amount. It allows you to release more equity from your home for lower payments. However, if your current mortgage is on a good rate, it can change with the new mortgage. So, you will need to make sure it makes financial sense in the long term.

You can choose to secure a loan to your mortgage to take care of your debt. It can be a good option if you are not able to prove your income if you are self-employed, for example. Going this route allows you to keep a good mortgage deal if you currently have one. However, this type of loan usually has a higher interest rate than taking out a debt consolidation remortgage.

Is a debt consolidation remortgage right for me?

The suitability of a remortgage for consolidating debt will depend on your circumstances. It is typically helpful for homeowners that have a lot of credit card debt. As the interest rate on the remortgage is lower than credit card rates, it saves money. However, certain circumstances may make this type of loan unsuitable such as:

· The amount of equity you have in your home

· Does your current deal allow you to borrow more?

· Your mortgage term

The amount of equity you have in your house will be a factor in the remortgage deals you get. Your current mortgage may not allow further borrowing so you may need to move lender. If you have a fixed-term mortgage and that term hasn’t finished, you may have to wait. If you choose to move mortgage during the term, you may incur additional charges.

A financial advisor will be able to check all of these things for you. They will look at your financial commitments and current loans to see if a remortgage is the best option. 

Friends Capital can help you, talk to one of our advisors today!

Guide to saving a deposit

When you are applying for a first-time buyer mortgage, you will need a deposit. With the cost of rent almost as high as mortgage payments, saving can be tough. The cost of living can leave you with very little leftover. So, if you are hoping to get on the property ladder, we have some tips on saving for a mortgage deposit.

Work out what you need

A first-time buyer mortgage can require up to a 20% deposit. Depending on the cost of your first home, it can mean you need a substantial amount. It can feel overwhelming if you require a large amount for a deposit. But, some things can help reduce the amount you need:

· Ask your parents for help

· Buy a home with friends or family

· Equity schemes

· Buy part of a property

Ask your parents for help – If a large deposit for your first home is what you need, you could turn to the bank of mum and dad. Your parents may be able to help with a cash gift or possibly be a guarantor. Bear in mind though they will be liable to pay the mortgage if you can’t if they act as guarantor.

Buy a home with friends or family – Other people you know maybe in a similar situation and not be able to get on the property ladder. If so, you can join together to buy your first house. Set out everything from the beginning. You will need to have a clear plan if someone wants to sell their share later.

Equity schemes – Renters of council or housing association properties can be eligible for shared ownership schemes. If you are renting one of these places, you can apply for an equity scheme. In these types of deals, you buy a portion of the house and pay rent on the rest. You will have a smaller mortgage and deposit but still, pay rent.

Buy part of a property – If you do not rent from a council, there are other types of equity schemes you can get. Help to Buy allows you to buy a new home with help from the government or the builder. Typically you will only have to give a 5% deposit with the scheme providing the rest. It is usually a free loan for so many years and will be paid back later. So, you will need to plan how you will pay it back.

How much can you afford to save each month

Once you know how much you need for a deposit, you can start saving. Look at your expenses every month and be realistic about how much you can put away. Regularly saving a little each month is a better strategy than relying on one-off bonuses.

Set up a savings account, you can easily do this online or pop into your bank. Once you have your savings account, set up a standing order for each month. Only set the amount at what you can comfortably afford. If you set it too high, you will find it difficult and may give up altogether.

Make sure you are budgeting wisely

When you look at your outgoings, make sure you are getting the best deal on everything. Look at your gas and electricity tariffs and compare mobile phone deals. You may be able to increase your savings by moving to better offers for your insurance as well.

You will also want to make sure you factor in unexpected costs too. Replacing a broken appliance or needing repairs on your cars will all need to be part of your budgeting. 

Make the most of your savings

The savings account you put your deposit money in can also help with building up funds. So, compare the best savings account rates for the best deals. If you can afford to save a set amount each month, then a regular savings account will work for you. The amount you save may change each month so you can choose an instant access account.

Banks have different offers when it comes to a savings account so do your research. Online accounts can sometimes offer higher rates, so make sure you look into these too.

Reduce your monthly costs

If you want to save for a mortgage deposit even faster, there are some steps you can take:

· Move back home with your parents

· Find a smaller property to rent

· Rent with someone else to share the costs

Finding the best first-time buyer mortgage

As a first time buyer, you will find lots of mortgage deals out there. It’s a big commitment so you will want to find the best deal possible. Many banks and lenders will offer a mortgage consultation service. You will want to use an impartial advisor. They will be able to compare the best first-time buyer mortgages for you.

An expert on first-time buyer mortgage deals will look at what you have in savings and what you can afford. The advisor will be able to show you which offers are most suitable for your situation. At Friends Capital, we offer a free mortgage review service. We have a specialist first-time buyer team that will be able to help you get the best mortgage for you.