Five Very Excelent Reasons To Use a Remortgage To Clear Unsecured Debts And Loans
The amount of unsecured debt in the UK has increased substantially over recent years. According to the charity Credit Action, Brits owed a total of £1.454 billion in February 2011 on which we pay £182 million in interest every day. And, as unsecured loans are riskier than secured loans (as the lender doesn’t have any security for the loan) interest rates tend to be higher.
So, what is to be done? Well on an individual level, it might be the perfect time to consolidate personal debt into a remortgage. If like you have credit cards or personal loans, it could be time that you considered consolidating your debt with a remortgage. A remortgage allows you to switch your home loan without moving house and you can often borrow additional funds as part of the process to pay off other debts. Here are our top five reasons why you should seriously consider remortgaging to consolidate debt.
Lower interest rate: Remortgaging can allow you to reduce your interest payments in two ways. Firstly, it lets you benefit from a lower interest rate on your main mortgage. Secondly, it can reduce the interest rate that you are paying on your other debts as you will be charged interest on a low remortgage rate rather than on a higher unsecured rate basis. And, remortgaging can let you take advantage of a promotional mortgage deal such as a discounted or fixed rate.
A remortgage can typically be arranged at an interest rate of 4-5 per cent. This compares favourably with the average credit card interest rate in the UK which was, according to Moneyfacts in March 2010, 18.9 per cent. Remortgaging allows you to borrow money at the lower rate to repay debts at a higher rate.
Spread payments over a longer period: Credit cards are generally designed for short term borrowing whilst personal loans are normally taken out over a period from one to seven years. A mortgage, however, tends to run for a much longer term. This allows you to spread your repayments over a much longer period, although bear in mind that you may pay more interest in total if you consolidate your debts over a 15-25 year term.
Save time by dealing with one creditor: If you have several credit cards with balances or one or more personal loans it means that you are likely to have a number of different financial services companies to deal with. So, dealing with all of them – for example to change your bank details or address – can be time consuming.
With a remortgage, you can simplify your finances and save yourself time. By borrowing additional funds to repay your unsecured debts you will be left with just one loan and just one lender. Instead of having to deal with multiple companies you will just have to correspond with your mortgage lender which is much simpler and more straightforward.
One direct debit: Remortgaging to pay off debts also means that you simplify your payments. Instead of having to remember to make multiple ‘minimum payments’ to credit card companies every month or have multiple standing orders to personal loans, a remortgage means you will just have one direct debit coming out of your bank account every month.
Lower repayments: Repaying your credit cards and personal loans with the proceeds of a remortgage can also help you to reduce your total monthly outgoings. As you are likely to be paying a lower interest rate and, often, over a longer loan term, you will find that less is coming out of your bank every month.
If you are hoping to slash your monthly debt burden or if you wish to consolidate debt into a single monthly affordable payment, getting a remortgage could be the ideal way to achieve this. However, it is important to remember that if you are securing previously unsecured debt, you are placing your home at risk if you fail to keep up your repayments.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s
top sites for the latest remortgage rates and best remortgage deals.