Inflation, interest rates and bills are rising, and we’re currently seeing record-high house prices. It’s clear that the cost of living is growing, and so is the total amount of unsecured consumer debt across the UK.
Currently, the amount stands at £197.9 billion, which averages around £7,119 per household. Part of this amount includes credit card debt totalling £2,058.
If you’re looking into debt consolidation options, here’s how you could save £400 a year by remortgaging.
What is consolidating debt through remortgaging?
Remortgaging your debt simply means bundling some or all of your existing debts into one loan – your mortgage. The goal is to make it easier to pay your debts at a lower interest rate, saving you money.
Debts from different lenders are brought under one lender – they can be personal, business, credit card, car or tax loans.
Keep in mind that this approach doesn’t work for everyone, and there are many factors that you need to consider.
What should you consider before consolidating your debts through remortgaging?
Here are three key questions you should consider if you’re thinking about remortgaging to consolidate debts.
1. What are the different interest rates?
Since your goal is to save money, aim for the lowest interest rates. Check what you’re currently paying and make sure your new mortgage interest rate is lower than any other loans or debts you have.
2. What fees will you incur?
If you remortgage, especially while still on your fixed-rate mortgage period, you’ll incur mortgage cancellation fees. These can be pretty high, to the extent that it might not be worth remortgaging. Crunch the numbers to ensure that you will still save money with your new mortgage despite incurring these fees.
3. How long is the term on your new mortgage?
Even if you find a low-interest mortgage, it’s crucial that you check the length of the term. A low-interest mortgage that stretches for a longer period may end up costing you more.
Can you really save £400 by consolidating your debts through remortgaging?
Norton Finance carried out research and identified that UK homeowners could set themselves up to save £400 every year by remortgaging, and it would only take 21 days.
The independent finance broker explained, “The most organised borrowers with strong credit scores have been completing applications within 21 days this year.
“Remortgaging is no longer taboo; it can be a really prudent way to streamline your outgoings. Leveraging your home, usually your biggest asset, can make a substantial difference to your monthly outgoings, especially if you have loans, credit cards or other more expensive unsecured debt.”
Just shop around for a mortgage deal at a lower rate than your existing debt and ensure it doesn’t have a long term that makes it more expensive in the long run.
Norton Finance also points out that you could speed up the process by:
- Checking your credit score to find out if there’s anything you can do to improve it before making your application
- Analysing your financial position
- Using an online mortgage calculator to determine how much you can borrow
- Gathering all the paperwork required, including mortgage documents and credit agreements
- Gathering information such as property value and type, and employment and income details
- Utilising a mortgage broker
The post How to save £400 by consolidating your debts through remortgaging appeared first on The Motley Fool UK.
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