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A Guide to Debt Consolidation Remortgage

A Guide to Debt Consolidation Remortgage

If you own your home and have a lot of secured or unsecured debt you are having trouble paying off, a debt consolidation remortgage might be a good solution for you to pursue.  This relatively simple process allows you to refinance your home and get rid of high interest credit card and other loan payments into a single payment under your mortgage.  Simply put, debt consolidation remortgage lets you use the equity you have in your home in order to pay off all of your other outstanding debts, and then pay off the same amount owed as part of your mortgage payment instead.

Advantages to Debt Consolidation Remortgage

There are a number of advantages to debt consolidation remortgage.  First of all, most mortgages qualify for much lower interest rates than credit cards and other types of loans.  When you consolidate the money owed on those higher interest loans under your mortgage, you can pay off the amounts owed faster because the interest rate is lower.  However, bear in mind that if your debt consolidation remortgage results in a much higher mortgaged amount, you are paying that lower interest rate on a larger amount of money, which can sometimes negate the savings.

Another advantage to a debt consolidation remortgage is that it allows you to reduce your monthly payments to one single payment.  Instead of having to keep track of many different bills to pay each month, you need only worry about one.  If you have your mortgage payment drawn automatically from your bank account each month, you don’t have to even think about that payment at all.  This means your life will be greatly simplified, as will your finances.  

Of course, you should bear in mind that a debt consolidation remortgage will result in a higher monthly mortgage payment, and you will be paying on that mortgage for a long time.  Before you enter into a debt consolidation remortgage agreement, you should be certain that you can handle the mortgage payment in the long term.  It is easier to find a small amount of money to pay off a credit card completely than it is to find the large sums required to pay off your mortgage!  For this reason a debt consolidation remortgage is not always the best solution to getting your debt under control.

Prerequisites to Debt Consolidation Remortgage

You will need to have some equity in your home in order to be considered for a debt consolidation remortgage by your lender.  This means that either you have paid down your mortgage significantly, your home has increased in value, or you put down a large down payment in the first place, leaving you plenty of equity.  You will only be able to take out a new mortgage on your home up to the value of the property on the market, therefore you need to have enough equity available to cover all of the debt you are trying to roll into the mortgage payment.  Use caution when you decide to go forward with a remortgage. If you mortgage your home right up to the current property value, you are at risk of being upside down on your home if anything should happen to cause the housing market in your area to drop, or the value of your home goes down in any other way.

It is important to remember that as with any other refinance, a debt consolidation remortgage involves certain fees and out of pocket costs.  This includes closing costs and fees paid to any mortgage brokers or lawyers who are involved in the process.  You will likely need to have this cash on hand before you begin the process of a debt consolidation remortgage, and it can reach into the thousands easily.

A debt consolidation remortgage can be a very useful tool for getting all of your debts and monthly payments under control.  The best way to determine if it is right for you is to make an appointment with your financial advisor, broker, or mortgage company.  You will need to know all the details of the process and the costs before you get started, and you will also need to find out if you will qualify.  A debt consolidation remortgage is not right for everyone, but in many cases it is a great solution to financial problems.

Photo courtesy of Daquella manera.

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