Key points you need to be aware of when getting a Remortgage to pay off debt.
Debt consolidation into your mortgage is not a new idea but there have been many refinements to the lenders policies, some unwritten, which has made this exercise harder in recent times to Remortgage to pay off Debt.
It may be premature to talk of a second recession following the vote to exit the European Union but undoubtedly there will be consumers fearing for their jobs as large firms become open to relocation away from these shores so consolidation could be a way of preparing for the worst. Even if your job is secure getting a Remortgage to pay off Debt should still be considered routinely as a health check to your finances. Put another way why pay 15% on a credit card or 7% on a personal loan when a mortgage rate could be fixed under 2%?
True; borrowing the money over a longer period will add to the cost but making ends meet on a monthly basis is paramount to most of us so getting a Remortgage to pay off Debt could be an option but its always worth speaking to a expert mortgage broker when its comes to Debt consolidation.
Examples include: home improvement loans; car loans; student loans; hire purchase; credit cards; store cards; catalogues etc.
What do I need to consider if I want to consolidate debt into a mortgage?
Well the principal difference between personal finance and a mortgage is the security for the repayment of the debt. Non-payment on personal finance will normally result in a bad credit record and possible the reclaim of the goods. Non-payment on a mortgage, for typically a six month period, will result in the Lender taking your home i.e. repossession. As the stakes are higher the mortgage rates are generally a lot lower. So if you are confident you can keep up repayments the latter may be the best option for you.
How do I qualify for a debt consolidation remortgage?
In order for a mortgage lender to consider you as a borrower they will want to make sure of the property’s value and that it is saleable. If you live in a populated area Rightmove or Zoopla websites should be able to give you an insight to how much your property is worth.
The maximum loan-to-value (LTV) a Lender will consider for a Remortgage to pay off Debt is 90%. Therefore if your existing mortgage is £50,000 and your property is worth £100,000, they will lend you £90,000 i.e. £40,000 more to repay your personal debt.
Each Lender is different though and many limit the loan-to-value (LTV) for debt consolidation to 75%. Others put in a monetary maximum say £30,000.
There may also unwritten guidelines to Underwriters to reject cases for a Remortgage to pay off Debt.
- Where they can see you have consolidated debt previously and presume this is the only way you can sustain your lifestyle and therefore you are not a customer for them.
- Your current level of personal debt is a certain ratio to your income level. For example, you have loans totalling £30,000 and you earn £40,000 which exceeds their unwritten 75% ratio. They appreciate the personal debt will be repaid but again their concern is you will run it back up afterwards.
The rules are often hard to interpret and we would highly recommend you seek professional mortgage advice from a mortgage broker, such as Niche Advice if your thinking about getting a Remortgage to pay off Debt.
Do mortgage lenders apply different affordability calculations to applicants who want to consolidate personal debt?
As with all mortgages there will be an income assessment. If you currently have personal debt this will be factored in even if the plan is to pay it off by consolidating this into the remortgage. This is a fairly new market development but the ethos has been adopted by most Lenders. As you would expect as specialist mortgage brokers such as Niche Advice can still navigate you to a preferential Lender and outcome.
Once the remortgage monies are released when do I need to clear my personal finance debts?
Nearly every Lender will write a condition in the Mortgage Offer that the personal finance needs to be cleared on the release of the funds. Really anal Lenders will instruct the acting Solicitor to settle these directly with the personal finance providers when disbursing the funds. Niche Advice has Lenders that simply drop the amount into your bank account with the onus placed on you to fulfil your promises and in the case of one Lender a 30 day grace period to settle debts is granted.
Can I consolidate debts onto a buy to let mortgage?
Yes, absolutely. The loan to value (LTV) is a maximum of 85% rather than 90% on a residential mortgage. However, I would stress the rental coverage has to be excellent over 75%LTV.
I want to stop monthly payments on my finances is this possible?
If you are over the age of 55 years and a homeowner with excellent equity in your property i.e. low loan-to-value, there is a creditable alternative to forking out every month for your debts, and that is equity release. Rather than pay a monthly instalment the equivalent interest payment is added to your mortgage balance. On death the Lender is repaid and equity balance reverts to your estate.
Can I remortgage to repay/consolidate a HRMC tax bill debt?
This is a question I get on a regular basis and the short answer is ‘yes’ but you need to call me personally to discuss this in full.
Can I remortgage to repay/consolidate a business debt?
Yes, there are solutions provided the business is in good health. A maximum loan-to-value of 85% applies.
Can I remortgage to repay/consolidate a school fees debt?
Yes, as a father myself I understand the importance of continuity of schools and I should be delighted to help.
To recap the approach to debt consolidation has changed within Lenders in 2016. The rules are much stricter for getting a Remortgage to pay off Debt but we have proven solutions. Often this is simply case of portraying customers in the most favourable light. As a company we only insist on being paid on results so until you have the funds in your pocket there is NO CHARGE from us.
In short it can be a minefield to find out all you need to know about getting a Remortgage to pay off Deb, so if you are looking to raise money its best to seek professional mortgage advice to avoid disappointment. For more information call us on 020 7993 2044 or complete the online enquiry form on this page.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines. To get in contact with him please click here.
