New figures from the FSA report that there is one mortgage repossession approximately every ten minutes.
A mortgage expert for Think Money commented: “In an economic downturn, it’s to be expected that repossessions will rise, but homeowners should be aware that there are often things they can do to reduce the chances. First and foremost, we advise them to contact their mortgage lender and explain their situation.”
If you have several debts you are looking to repay, a debt consolidation remortgage could be the answer. It allows you to consolidate your debts as part of your mortgage terms – effectively adding your debts to your mortgage. It also enables you to repay the debts over a much longer period than an unsecured debt consolidation loan, or other debt solution, making repayments cheaper (although repaying what you owe over longer could mean you pay more in total.)
Will I be able to get a debt consolidation remortgage?
It’s been well publicised over the past year that mortgages are harder to get than they used to be – a 10% deposit is all but a necessity, and lenders are being stricter about their lending criteria than in recent years.
Because they involve paying back both your mortgages and your debts, debt consolidation remortgages can be a little harder to obtain than regular mortgages. But with a sufficient credit rating, adequate deposit and a proven ability to repay it (i.e. good earnings), it’s still quite possible to get a competitive deal.
As debt consolidation remortgages rely on equity withdrawal, the amount of equity you have tied up in your home will also affect your ability to obtain a debt consolidation remortgage, and how much more you can borrow to pay off the debt.
Your equity includes any deposit paid on the house, any repayments you have made and any increase in your home’s value – essentially, it is the proportion of your home that you actually own. The more equity you have, the more equity you have the potential to withdraw – plus your lender will be more confident in your ability to repay.
Will it be affordable?
This really depends how big your debts are – i.e. how much extra you need to borrow. For example, if you have a mortgage for £100,000 and want to consolidate £50,000 of debts, you can expect your payments to go up by 50%. Consolidating £8,000 of debts on a £150,000 mortgage, on the other hand, would be much more affordable. If you are unsure whether your debts are too big for a debt consolidation mortgage, or want to know about other possible debt solutions, talk to an expert debt adviser.
Interest rates
Debt consolidation remortgages are offered at the same rate of interest as a regular mortgage – the only added expense will be the extra you borrow to pay off the debts you have consolidated into the mortgage.
This will vary depending on your circumstances: if the homeowner has a poor credit history, the interest rate is likely to be a little higher. Since the interest rate applies to the whole mortgage, not just the other debts, this could add up – so it is important to make sure you can afford the monthly repayments if you are going to take this route.
Article written by M Taylor of debtadvisersdirect.co.uk
Anyone who knows something about debt probably knows something about debt management companies – professional firms who will manage an individual’s debts on their behalf.
This article takes a look at the pros and cons of debt management in terms of three topics close to any borrower’s heart: saving money, reducing stress levels and protecting credit rating.
Topic #1: Saving money
Pros: Monthly payments lowered. Interest frozen. Charges waived. The better their relationship with creditors, the better a debt management company’s chances of successfully negotiating for one or more of these concessions. This can save the client a considerable amount of money – not just every month, but potentially over the course of the debt management plan as well.
Cons: Lowering monthly payments means debts take longer to pay back. If interest hasn’t been frozen, they’ll also accumulate interest for longer, adding to the long-term cost. Plus, there’s no guarantee creditors will agree to any concessions, or that they’ll save the client more in the long run than the debt management company charges in fees. And since a debt management plan is an informal agreement, they’re free to change their minds.
Topic #2: Reducing stress levels
Pros: Some people don’t have the time to deal with complicated finances, or don’t feel confident about doing so. For them, it’s a huge relief to hand their debts over to someone else, who might handle everything from letters and phone calls to negotiations and payment distribution. And some people admit they’re no good at juggling numbers and negotiating deals, so it makes sense to let a professional talk to creditors and propose a repayment plan that leaves them enough money for essential bills and other expenses.
Cons: Not everyone feels like this. Many people would rather keep their finger on the pulse personally, so the thought of adding an intermediary just adds more complexity to an already-complicated matter. In short, they feel less stressed when they know they’re handling it themselves.
Topic #3: Protecting credit rating
Pros: By making new arrangements with creditors, a debt management company can minimize the impact of debt on someone’s credit rating, keeping debt problems from escalating into CCJs (County Court Judgments) or even bankruptcy. Plus, even though debt management addresses unsecured debts, it frees up money for secured debts such as mortgage payments, so people can avoid getting into arrears – or even being evicted.
Cons: When they agree to reduced payment terms, creditors may register a default (if they haven’t done so already) and this will appear on the borrower’s credit report, potentially making it harder and more expensive to get credit.
In conclusion… Debt management isn’t for everyone. Some people don’t like the idea of delegating their financial affairs like this. Others may not be eligible: creditors will negotiate like this when borrowers can’t afford their ‘normal’ payments, not when they’re simply looking for a way to reduce their monthly payments.
But for some people, the right debt management plan can be exactly what they’ve been looking for – a planned, systematic path out of debt and back to financial stability.
Find out more about dealing with debt (including debt management plans, debt consolidation loans and IVA’s) at http://www.thinkmoney.com
