Feeling buried in debt while you are on a mortgage too? It might seem risky, but in the UK, debt consolidation mortgages are becoming a popular lifeline for those wanting to get out from under the pressure of multiple unsecured debts. How is that possible? We are here to answer that. 

This option has started to become popular as a practical solution. It can make financial management simpler and easier. But with all greatness comes its own set of complications. A mortgage debt consolidation​ is a big step that can make or break your financial profile.

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What is Debt Consolidation? 

Don’t let complex terms intimidate you, it is actually quite simple and even appealing when broken down. Essentially, debt consolidation means merging multiple debts into a single loan. If you have credit card balances, overdrafts, and personal loans, juggling them all can be overwhelming. However, with consolidation, you bring all of it in one single payment. Now you do not have to keep track of multiple commitments. 

While making finances easier and more organised is a big plus point, is that all? No. The most appealing factor of a debt consolidation mortgage is that it turns your unsecured loans into a secure one. How does that benefit you? Interest rates on unsecured loans are usually much higher than on secured debts. This is the biggest way a debt consolidation mortgage can take a big burden off you. 

Consolidating Debt into a Mortgage

To consolidate debt into a mortgage, you have to go through remortgaging. You would be replacing the current deal with a new one. The new arrangement will then include the outstanding balance. You can consolidate your debts into a mortgage, on the condition that you own enough equity of the property. The financial pressure of managing multiple payments is reduced but the downside is that our debt is now secured against your home, risking repossession if repayment obligations are failed to meet. 

Consolidate Debt into a Home Equity Loan

Other than mortgage, you can also consolidate your debt through home equity loans. Home equity loans are more common for funding home improvements or any large expenses, but they also have found their way to consolidate debts. In this process, you basically borrow against the equity you have gained of your property, using your home as collateral.  This option is attractive for those with a big portion of equity built up but risks are likely if property value declines or the financial situation changes. 

Debt consolidation mortgages are proving to be very beneficial for many in the UK to relieve the burden of debts. However, such an arrangement still requires very careful planning as a secured loan comes with its benefits but the risks are also pretty big in numbers. 

Weighing the cons against the pros is extremely important. Consulting a mortgage debt consolidation​ expert can help you understand if this is truly the way out or the invitation to more trouble. 

Are you qualified for mortgage debt consolidation​?

There is not exactly a fixed textbook rule to qualify for a debt consolidation as different lenders have different assessment policies. In the UK, debt consolidation mortgage lenders​ will go through several factors of your financial profile to understand your management skills. 

Credit Score: The higher your credit score is, the smoother your mortgage journey will be, no matter the situation. Lower credit scores can still qualify but possibly with more undesirable terms. 

Income and Affordability: A good pay removes some of the risks associated with having debts. It makes mortgage payments more affordable, increasing the lender’s confidence in you. 

Loan-to-value ratio: The lower your LTV ratio is, the more likely you are to get qualified by debt consolidation mortgage lenders​. If your ratio is under 80%, you are good to go and likely to receive great offers!

Existing Debt: This will be scrutinised heavily. If your debt exceeds your home’s value, you cannot consolidate all of it in your mortgage. While some of it may be possible, high debts may make the lender lose their trust in you, leading to an unsuccessful application. 

Dos and Don’ts

Pros & Cons

Pros

• You can save money on interest as mortgages come with lower interest rates than unsecured loans or credit card debts.
• Your finances will be easier to manage, helping you stay organised as you have one monthly payment to worry about.
• You may be able to save up each month as your monthly payments are reduced. 

Cons

• It is possible that you will end up paying more interest overall if you opt a long repayment term. 
• You subject your property to risk if you do not make repayments on time as you are using your home as security.
• As debt arrangement is changed, extra costs may be involved such as legal fees, valuation charges as well arrangement fees.

If a debt consolidation mortgage doesn’t seem like the right fit for your situation, you can take the help of an advisor and explore alternative options. There are formal and informal agreements between you and creditors such as debt management plans or individual voluntary arrangements that open gates to affordable repayments. Some UK credit cards also offer  0% interest on balance transfers for a set period

Conclusion

In essence, to understand if debt mortgage consolidation is the way to go, you have to assess your existing debts thoroughly to understand if repayments, and interest rates are actually benefiting you. The goal is to determine whether moving your debts into one manageable mortgage payment results in a healthier financial profile.

If a debt consolidation mortgage sounds like the right fit for you or you would like to seek solutions to your special problems, our team at UK Mortgage Finder is one call away. We can connect you to various products and lenders, finding you the best deal.