As Mortgage Brokers one of the types enquiries we receive are from people looking to wrap up their debt in to one monthly payment secured against their home the term for this is “Debt Consolidation” it may also be referred to as a “consolidation loan”, there are 2 ways we can help with this, the first is a conventional mortgage and the second is a secured loan.
Pros of a Debt Consolidation Mortgage
Debt consolidation mortgages can work well in certain scenarios. If you have spent money renovating or extending your home for example, you may have put the debt on to more expensive forms of credit such as credit cards or loans. Once the works on the property is complete and the amounts have mounted up, it can make sense to consider rolling that debt up and securing it against your home in order to take advantage of lower rates or reducing the repayments by paying it off over an extended term.
Another example could be where a debt consolidation mortgage can come in handy is if you you have paid for something that you may consider to be a life event, a wedding, child’ wedding, a tour of the world maybe – something that was expensive to you and will probably only happen once or twice in your lifetime.
We could also potentially look at wrapping debt up which was incurred as a result of ill health to yourself or a relative, where maybe the treatments costs were expensive or you had to take time off work for treatment or to care for a loved one.
All of these things are easy to explain and understand and it can make sense to consolidate these debts in order to make your monthly expenditure more manageable and get back on track. But consolidating debt and securing it against your home is not always a good idea.
When does Debt Consolidation not work?
There will be times when consolidating debt and securing against your home is not best advice. It may help in the short term, but longer term you may end up back in the same situation, examples of this could be:
- Spending – by that we mean that there is no real explanation behind the debt other than you have spent more than you have been earning over a prolonged period.
- Gambling – Gambling in itself is not a problem, gambling to the point where you are having to put it on credit cards in order to do it, potentially is.
But these 2 examples are not necessarily a deal breaker. There could be reasons behind it, the debt was manageable and then you had to take a pay cut or time off due to ill health maybe? Or any number of things. All we ask is that you are open and honest with us and then we can hopefully come up with some ideas on how best to move forward.
We are not here to judge, but at the same time we are not here to “sell” either. Financial Services does not have the best reputation in the world at times, but as regulated Mortgage advisers we do have a responsibility to advise and do what is best for the customer, not necessarily what they want.
Can Mortgage Success help?
We will discuss with you your situation and your requirements. At that point we can look at whether a Mortgage or Secured loan to consolidate the debt is worthwhile or whether we should be looking at an alternative such as speaking to Stepchange or just having a look at spending habits, sometimes it can make a massive difference just writing down what you spend and where, and then calling those companies to ask for better deals – a few calls to insurance companies, utility providers, sky/virgin/internet etc and you could find you are significantly better off each month without it costing you a penny.
As mentioned above, we are not here to judge, we are here to help and where there is a clear sign of problematic debt or even a not so clear sign we do have a duty to question it. We want to understand how the debt came about so we can best advise you on your options and how either we can help or if not, where you may be able to get the best advice.
If we think (or you think), there is potentially a bigger issue with debt then we can have a look at other options, it can be worthwhile speaking to someone like Step Change (who are a debt charity) or reviewing your spending habits in order to see if you can reduce your expenditure to get back on top of your spending yourself – sites such as Debt Camel can be useful.
If in doubt, get in touch. We are only too happy to have a chat and see what we can do, we will always try to point you in the right direction if we can not help.