Five Good Reasons To Use A Remortgage To Secure Unsecured Debt

Five Good Reasons To Use A Remortgage To Secure Unsecured Debt

Over the last few years, unsecured debt in the UK has risen significantly.  By February 2011, Credit Action reports that total UK personal debt was £1,454 billion. Individuals currently owe more than the entire country produced during the whole of 2010. And, much of this borrowing is at high interest rates.  Brits pay £182 million in personal interest every single day.

So, if you have credit cards or personal loans, it could be time that you considered consolidating your debt with a remortgage.  A remortgage allows you to switch your home loan without moving house and you can often borrow additional funds as part of the process to pay off other debts.  Here are five reasons that you should consider remortgaging to consolidate your debts.

Lower interest rate: One of the main reasons that many people remortgage is to benefit from a lower interest rate.  Not only can you reduce the interest rate on your mortgage, but you can also reduce the amount you’re paying on your other debt.  You can often also take advantage of fixing your payments of benefiting from a discounted variable or tracker rate.

Moneyfacts recently found that the average credit card interest rate in the UK was 18.9 per cent.  However, a remortgage can often allow you to borrow at around 4-5 per cent.  Borrowing extra on your mortgage to repay your unsecured borrowing could save you a considerable sum in interest charges.

Spread payments over a longer period: Personal loans generally have a maximum term of around 5-7 years whilst credit cards are designed for short term borrowing.  If you remortgage your home to repay your unsecured debts, you can benefit from taking the loan over a longer period.  Remember that whilst this may help spread your repayments over a longer term, you may end up paying more interest in total in the long run.

Save time by dealing with one creditor: One of the main problems with having multiple credit cards or personal loans is that you end up having to deal with multiple creditors.  If you ever need to change your address or bank account details you might spend hours dealing with a number of different companies.

By consolidating your unsecured debts with a remortgage, it means that you end up with just one creditor – your mortgage company.  It makes your finances a whole lot easier to manage and you don’t have to spend hours dealing with multiple lenders in future.

One direct debit: In addition, rather than paying direct debits to a number of companies (for personal loans or for the minimum payment on your credit card), consolidating your debts with a remortgage means you will have just one payment going out of your bank account every month.

Lower repayments: Remortgages typically allow you to borrow money at a lower interest rate than unsecured loans over a longer period of time. The major effect of this is that it can make your monthly debt repayments much lower.

If you are looking to reduce your monthly outgoings or to consolidate your debts into a monthly payment that is more affordable, a remortgage could be the perfect way to do this.  Just remember that by securing a previously unsecured debt, it means that your home will now be at risk if you fail to keep up your repayments.

James McHeggins writes for one of the UK’s top sites for the latest remortgage rates and best remortgage deals.

Some Fees Are Worth Paying For The Best Remortgage Deal – But Only At The Right Moment

One of the main reasons why homeowners look to remortgage is to save money.  Whilst there are other reasons to consider a remortgage – to benefit from a fixed rate or to borrow additional funds – saving money is the principal aim of most.

So, finding a ‘fees free’ remortgage deal might sound like the obvious best choice.  These deals involve a lender meeting the legal and valuation fees incurred in your remortgage, meaning that you don’t have to shell out for any costs.  However, there are certain circumstances where actually paying one or more fees involved in the remortgage process may actually be worthwhile.  Our guide explains why.

Pay a fee for a better deal: A true ‘fees free’ remortgage will offer a fixed or discounted/tracker mortgage product with no arrangement fee or booking fee.  However, depending on the size of your mortgage, you could actually be better off by paying such a fee.

For example, you want to remortgage your £150,000 ‘interest only’ home loan onto a fixed rate.  The ‘fees free’ deal is at 5.5% for five years but the lender also has a deal at 5% for five years with a £999 fee.  The lower rate actually saves you a total of £3,750 over the five years, so even taking the £999 fee into account; you will be £2,751 better off.  In this case, paying a fee actually saves you a substantial sum.

Go for the best deal, not the best remortgage deal: Another way you can save money is to not restrict your search to products with a ‘remortgage package’ – where the lender meets the valuation and legal costs of a remortgage.  Sometimes, paying for a valuation and paying your solicitor to undertake the legal work in order to benefit from a very low rate deal can be cost effective.

Using the example above, suppose there was a 4.5% fixed rate deal for five years but that you had to pay the costs yourself.  The lower rate would save you an additional £3,750 over five years.  So, even if you had to pay for a valuation fee (at £400) and the legal fees (at £350) you would still end up much better off over the term of the fixed rate.

Paying a broker: Many homeowners go it alone when looking to switch their home loan.  However, there may be a number of good reasons to use a mortgage broker to find a deal for you.  Brokers typically have access to the widest range of remortgage products; indeed many can offer rates that are ‘exclusive’ to them and not available to the general public.

Even if your broker charges a client fee, you often find that the deal they will find for you saves you a considerable amount – certainly a lot more than any fee you will pay to them directly.

Paying early repayment charges: In some instances, it can be worth paying an ‘early repayment charge’ to your existing lender in order to benefit from a better mortgage deal elsewhere.  If you are paying a high interest rate, the savings you make by remortgaging may well outweigh any penalties that you pay to your existing lender.

This requires a careful calculation of the savings that you will make against what you are paying to your current lender. Some ‘early repayment charges’ can be significant and so you should consider very carefully whether this will be financially worthwhile to you.

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