Remortgaging can provide a solution to making yourself debt free, but it may also have some drawbacks. By weighing the pros and cons of remortgaging to pay off debts, you can come to a decision that will be of benefit to you.
Pros to remortgaging to be debt free
When you remortgage to consolidate your debt, you may find that you will be able to decrease your monthly payments, which can help give you more spendable income each month. You will also likely reap the benefits of a lower interest rate. Most credit cards have a standard rate of around 17 percent, while the interest rate on personal loans is around 7 percent.
The interest rate on a mortgage may be as low as 4 percent, so by consolidating debts you will likely be able to lower the interest rate you are paying on your existing bills, as well as lower your monthly payment.
Another advantage to consolidating debts by remortgaging is the fact that you will have only one creditor to make payments to every month. This means instead of having to send out payments to various credit card companies or visit a local office to make payments on a personal loan, you will now only have to make a single payment to your mortgage company. Something else to consider when remortgaging is the interest rate you are currently paying as opposed to the rate you can get by remortgaging.
By shopping around you may find that you can remortgage with a company that can offer you a lower rate than the mortgage you currently hold. This can also lead to more disposable monthly income as a mortgage with a comparable term taken at a lower rate will result in a lower monthly payment.
These are all factors that can help you decrease your debt by remortgaging. Since the remortgage will result in a single, less expensive monthly payment, this could also have a positive effect on your credit as well. This is especially true if you have had some late payment problems with your current creditors, as the more timely payments you make on your remortgage, the better your credit will become.
Cons to remortgaging to pay of debts
When remortgaging, you may find out that you will be responsible for early redemption charges for paying off your existing mortgage. There will also likely be a fee of about 100 pounds for releasing the deeds. There will also likely be legal costs that will be included in the remortgage which usually run between 300 and 500 pounds.
It is possible that the mortgage company may cover these fees. However, another thing to be aware of is that you may not qualify to remortgage based on the new mortgage guidelines. It is no longer possible to get 125 percent LTV mortgages. Most companies will now only lend up to 80 percent LTV, meaning if you already have a mortgage that was taken out at 125 percent LTV, you will have to pay it down quite a bit before you will be qualified to remortgage.
If you would like further advice, you can find further information here – www.nationaldebtline.co.uk
