Can You Get a Mortgage To Consolidate Debt?
Yes, you can get a mortgage to consolidate your debt! If you’re nervous about getting a personal loan or credit card because they can often be associated with high-interest rates, a mortgage is an option to keep in mind when consolidating your debt. Remortgaging isn’t the same as getting a second mortgage, and getting a second mortgage is a valid option for debt consolidation.
If you’re a UK resident and considering if you should get a second mortgage to consolidate your debt, this article will give you some insight. However, it’s also a good idea to turn to a mortgage broker for assistance.
What Is Debt Consolidation?
Debt consolidation is the manoeuvre of combining all of a person’s outstanding debts into one more manageable debt, with the hope of improving one’s financial control. Often people search for loan types that offer a lower interest rate than their current loans- whether they be credit cards, payday loans or another type of personal loan. There are many ways to consolidate your debt, with some popular ways being through a 0% money transfer, personal loan or a second mortgage.
Debt consolidation is a growing trend among people in a debt crisis as there is a multitude of benefits to doing it.
Remortgaging Vs Second Mortgage
Remortgaging refers to the client moving their current mortgage to a new lender which might offer a lower interest rate or give them a better offer than their current situation.
However, it’s important to note that by remortgaging, a personal loan will likely then be extended and accompanied by some extra admin fees. In comparison, a second mortgage does not affect a current mortgage and does not have to be property-related either.
There are many lenders that consider second mortgages for people interested in home improvements, business expansion and even debt consolidation.
A second mortgage allows a person to have the flexibility to keep with their original mortgage, and not disrupt the loan, which is especially important if they have good terms and conditions, or low-interest rates, meaning they don’t need to have the hassle of remortgaging your property.
Top 3 Advantages of Debt Consolidation Loans
Better Financial Control: When a person reallocates all of their debts into one, it gives them more power to control their finances. This occurs as they are only required to maintain one debt, instead of a handful, and have just one monthly repayment. These monthly repayments are also always the same amount and are paid on the same day- meaning more stability and routine in their financial situation.
Lower Interest Rates: Debt consolidation is usually highly considered because often people search for a consolidation loan or mortgage which has a lower interest rate than their current debts. This, in turn, saves a person money on interest rates. For example, in the UK, credit card interest stands at about 22%, a personal loan is about 11% and an LTV mortgage is about 6.25%.
Boosted Credit Score: There is the misconception that consolidating your debt will cause a negative impact on your credit score, however, this is not the case over the long term. Transferring all of your debts into one means that your repayment scheme will be more manageable and therefore lower the likelihood of missing a payment, which would lower your credit score. Having a strong repayment history is one of the easiest ways to boost your credit score.
Should I Consolidate Debt Into a Second Mortgage?
This depends on your own personal financial circumstances, however, there are some advantages and disadvantages to consider when getting a second mortgage for debt consolidation. A second mortgage would mean that your borrowing is against your assets or, more specifically, your home equity. This option can sometimes give a person the opportunity to borrow a larger amount, compared to some other credit options, allowing a person with a weighty debt the option to consolidate.
As with any loan type, the risks must be evaluated and understood before making the decision of consolidating your debt. The biggest risk of a second mortgage is that your property could be repossessed and sold to repay your debt. Be sure to only make this commitment if you’re confident in your financial status and have the ability to repay the monthly mortgage repayments.