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Taking out a mortgage to consolidate debts can be an excellent solution. Mortgages are typically far lower interest than any other borrowing product and mean you can include all obligations in one monthly payment.
If you’re thinking about a mortgage to manage a bad debt credit situation, a specialist broker with experience in adverse credit is essential.
Today the Revolution Brokers team explains when a bad debt mortgage might be viable and what to expect from the assessment process.
For more information about debt consolidation mortgages or to begin a new application, please give us a call on 0330 304 3040 or drop an email to info@revolutionbrokers.co.uk.
How Do Debt Consolidation Mortgages Work?
In essence, this type of mortgage means you take out one loan against the equity in your home to repay other debts.
If you already have a mortgage, then you’ll be looking at a remortgage to borrow more against the property and repay everything else, including loans, car finance and credit cards.
To qualify for a mortgage to consolidate debts, a lender will assess:
- Your credit rating and current liabilities.
- How much your property is worth.
- The value you wish to borrow.
- How much equity you own in your home.
- Your average income or annual salary.
Some lenders will offer a debt consolidation mortgage but ask you to commit to a legal undertaking before finalizing the loan.
This agreement means you confirm that you will use the mortgage finance to repay your debts.
Benefits of Consolidating Bad Debts Into a Mortgage
There are pros and cons to repaying debt through a mortgage.
One of the positive outcomes is that it will usually mean your monthly repayments fall, and your finances are easier to manage.
Unsecured loans such as credit cards have much higher interest rates, so mortgaging your debt means you’ll pay lower rates – but potentially more over time since a mortgage typically runs for around 25 years.
However, there are drawbacks, and you must seek professional assistance before making any long-term financial decisions.
The potential downsides include:
- Securing debt against your home means that your property is at risk of repossession if you can’t keep up with the repayments.
- Bad credit mortgage interest rates are lower, but because a mortgage term is longer, you’ll be paying interest on the debt for a more extended period.
- Some borrowers may find that they can refinance bad debt more cheaply – the Revolution team are specialists in debt consolidation. We can advise on the alternatives such as balance transfer credit cards.
- Remortgaging usually means paying additional costs such as valuation fees, legal charges and arrangement fees.
Borrowing Maximums on a Bad Credit Consolidation Mortgage
If you have a history of bad credit, it’s still possible to refinance your debt through a mortgage – but the number of lenders to choose between will be lower.
Lenders will look at affordability criteria and total debt to income ratios to determine how much you want to borrow, whether you can realistically afford the repayments, and how risky they think the mortgage is since you’ve had credit issues before.
However, remortgaging to avoid other bad credit can be a sensible solution.
Note that while Loan to Value caps usually extend to around 90%, it’s unlikely you’d be accepted for a new mortgage as a bad credit applicant with a minimal deposit.
Give us a call if you want to remortgage to pay back unsecured debt, and we’ll advise how much you should be able to borrow based on the value of your property.
Some lenders also have fixed caps on debt consolidation mortgages – so they might offer up to £30,000 or up to £50,000 as a maximum value.
Debt Consolidation Mortgage vs Second Mortgage
A second mortgage can be an option if you are tied into a great deal with your existing lender and don’t want to remortgage.
Second mortgages are possible but less common if you have adverse credit.
A second mortgage is still secured against your home but is a different loan product and runs alongside your existing mortgage.
There is potential that you could borrow on a second charge mortgage to repay debts. Still, expert support is essential, as many mainstream lenders will not consider offering this borrowing to applicants with adverse credit.
Expert Advice With Bad Credit Debt Consolidation Mortgages
If you’re concerned about multiple debts, then mortgaging to get your finances back under control can be a solution. As we’ve mentioned, professional guidance is crucial since there are disadvantages to consider.
As experienced bad credit brokers, Revolution can advise which lenders will likely accept your application, ensure you understand the financing alternatives, and help negotiate competitive mortgage rates.
Get in touch on 0330 304 3040 or email at info@revolutionbrokers.co.uk for more advice.
