Debt Consolidation Options for Homeowners

What you need to know before you opt for Debt Consolidation

Methods of Debt Consolidation

There are many things to be wary of when it comes to Debt Consolidation. I’m a Professional Mortgage Broker and I’ll run through Debt Consolidation in the context of my thought process.

Full facts are needed on the item you are looking to consolidate to make an informed decision

• What is the interest rate?
  – will the mortgage rate be lower? If not, there is little point other than one simplified payment.
• Does the credit commitment have an end date?
  – what term is the mortgage? Can you divide the mortgage account into different portions with different end dates – as borrowing over a longer period will add the cost? For instance, if your main mortgage runs for 25 years, can you take a separate mortgage account for 7 years to match the car loan you are looking to consolidate?
• Is the credit commitment “rolling” without an end date
  – For example, a credit or store card. In which case can you pinpoint when you expect the balance to remain outstanding? Otherwise, the benefit comparison to mortgage consolidation will be hard to judge?
• Are there any early repayment charges on your credit commitment?
  – Any exit charges need to be factored into the equation as they will erode the benefit of switching to a mortgage.
• How do you plan to repay the debt?
  – For instance, if your mortgage is “interest only” you are really just kicking the repayment down the road rather than reducing your liability. Capital and Interest repayment is the only way to ensure the debt will be paid.
  – Overpayments. Certain mortgages will allow you to pay the debt off quicker by paying over the prescribed monthly payment without being penalised with early repayment charges.
  – How much do you earn and have you experienced difficulties with credit payments?

Mortgage options

• Further advance with your existing bank.
• Switching lenders by remortgaging.
• A second charge which a secured loan that runs alongside your main mortgage but with a different lender.

Have you explored alternative methods of repaying debt?

• Use savings or investments
  You should seek the services of a professional Financial Adviser to assess this route. It could, however, be that the repayment of your personal debt yields an interest rate saving over a say building society savings account.
• Unsecured loan
  The rates can be better than mortgages and in the event of non-payment, your home is not at risk.
• Speaking to your existing provider
  – There might be promotional rates to current customers.
• Balance transfers
  – Credit card offers are common place in the market. There will be charges for taking on the debt of another card but the end rate may be beneficial.
• Family and friends
  – Perhaps they could help?

Struggling to make payments on current credit commitments

• Existing providers. In this event, you need to have a regular dialogue with your existing credit providers. They may be able to provide a plan to reduce your payments for a period.
• Citizens Advice Bureau. This is an invaluable service that is free. They can offer advice on the reconfiguring of your debt and budget, and on how to approach existing providers and handle bailiff requests. Click on the link for more https://www.citizensadvice.org.uk/
• Serious issues. There are many commercial insolvency firms that can be found on the internet. They should be able to provide debt management solutions such as informal plans (DMPs) or structured individual voluntary arrangements (IVAs). And, also on bankruptcy.