Loans and Re-mortgages Dont pile on the debt
One of the ways you can reduce your monthly outgoings is to get a new loan to pay off your existing loans and outstanding credit card balances and indeed, pay off any other outstanding debts. Called a debt consolidation loan, you then pay off the combined loan over a longer period thereby, reducing your monthly payment.
In practice another way of achieving even a greater reduction in monthly outgoings is to re-mortgage and increase the amount you borrow in order to pay off those troublesome debts. The Citizens Advice Bureau (CAB) advise people not to make this decision too lightly saying, “Our Bureaus are seeing people coming in who are being threatened with repossession as they struggle to make payments.”
Whilst the aim of re-mortgaging to restructuring debt is to reduce monthly outgoings, you must be aware that over the years you will end up paying much more. That’s because the mortgage repayments are spread out over a much longer period than a normal loan and throughout that time the interest continues to clock on.
Take someone who needs £25,000 to restructure their existing debts. If they took out a 5 year loan at 6.9%, the monthly repayment would be £492. If they re-mortgaged over 25 years then with a typical re-mortgage deal of 4.85%, their monthly repayment would be £150 less. But the interest cost would soar. Instead of paying £4,510 on the 5 year personal loan, the interest on the additional £25,000 taken out on the re-mortgage would add up to £19,046 over the full 25 years.
So our advice is to ensure you consider a flexible mortgage where you can make overpayments as soon as your financial circumstances improves
