Have you found yourself with personal debt and are looking for a way out? Well, it turns out that you are not the only one. According to the Bank of England, personal debt for consumers in England rose to the highest for the first time since August 2020. Although more cautious households have worked to curb their borrowing in the last few weeks, car and personal loan lending still increased by £60 million for July 2021. For those homeowners seeking solutions to repay their debts, one option that has grown in popularity has been remortgaging their homes. Best of all, with fierce competition and still relatively low-interest rates, now may be the ideal time to think about remortgaging.
Why Remortgaging Makes Sense Right Now
A key benefit of remortgaging right now is the amount of money you could save thanks to the lower rates right now. According to current market averages, there are now several lenders offering deals with interest rates under 1 percent. When combined to pay off your debt, remortgaging can help in several ways. Firstly, it can allow you to release built-up equity which can then be used to pay off your debts. Remortgaging also enables you to take advantage of lower interest rates and monthly repayments. This, in turn, improves your financial situation every month and leaves you with more disposable income to put towards repaying your loans. For instance, Nationwide currently offers a 3 year fixed deal at a 0.89 percent interest rate and 40 percent deposit or equity requirement. For a home worth £350,000 and borrowing £200,000 (5.14 percent LTV), you would end up paying £4,572.72 in costs. There is also a £999 upfront fee required with applications. Finally, remortgaging can also be a start to improving your financial situation. Most credit lenders consider your credit score and circumstances when you apply for a loan.
How To Prepare For Remortgaging Your Home
Similar to preparing to apply for a mortgage, the process of remortgage takes some forethought. Spending some time to prepare can help you increase your chances of being approved and of getting the best remortgaging rates. One of the first things to do is to get a hold of your credit report. Consumers can request a credit report from 1 of the 3 credit reporting agencies in the UK (Experian, TransUnion, and Equifax). Stronger credit scores mean lenders will consider your remortgaging application more favorably. If there have been positive developments in your finances since you applied for your initial mortgage rate, this can also positively impact the remortgaging deal you qualify for.
Another thing you can do to prepare for remortgaging is to avoid applying for additional credit in the lead-up to remortgaging. This means avoiding overdrafts, opening new credit accounts, and applying for additional loans or credit cards. The reason behind this is that this increased your borrowing and your debt to income ratio. This in turn, negatively impacts your mortgage affordability. It also helps to spend some time researching your options for remortgaging on the market. Applications for debt consolidation mortgages are similar to typical remortgaging applications but not all lenders accept remortgaging applications at your ideal cash out terms (LTV ratio). With the interest rates still historically low right now, competition is fierce amongst lenders. There is also a long list of lenders with varying remortgaging deals. Be sure to consider all aspects of a remortgaging deal like early exit fees, interest rates, and penalties. All of these should be taken into account when considering the true cost of a remortgaging deal.
Things To Consider When Remortgaging To Pay Off Debt
For remortgaging to be successful in helping you clear your debt, you must have adequate equity built up in your home. Your financial situation should also be in a good place so you can comfortably qualify for a larger mortgage. So your current mortgage was £100,000 on a home valued at £200,000 and your proposed LTV ratio on a remortgaging deal was 60 percent, you would be able to borrow £120,000. This means you could borrow an additional £20,000. However, there are caveats to this. Remember that you are effectively restarting your mortgage term. You might also be getting a preferential offer which would need to be renewed after 3 to 5 years. Last but not least, remortgaging can be a good solution for some people- but not everyone. While it can help you unlock equity in your home, there are other options for capitalizing on the built-up equity in your home to repay debts. It also comes with its own set of risks particularly if you end up securing debts against your home. Before taking this path, ensure you have all the requirements in place and ideally you want to begin the process 3 to 6 months before your current mortgage offer expires. This gives you adequate time to shop around and weigh all of your options.