Remortgaging and Debts
Remortgaging is no longer something people do when their current term comes to an end. These days remortgaging is used as a means of consolidating debt. Remortgages are in essence secured loans. You take out a loan against your house pay all your debts and then just pay back the remortgage. The concept is relatively new as and has only been widely used in the last decade or so. In fact it’s been in the last five years that advertisements for ‘consolidating’ your debts have appeared on our television screens regularly. However remortgaging to consolidate debts may no longer be an option as the credit crunch in the US continues to affect the liquidity crisis in the UK.
When you want to remortgage your home your best bet is to speak to a mortgage broker. He or she has access to all of the products on the market and can assess what the best product for you is. Mortgage brokers can offer an unbiased view because they are not tied to any product or lender. If you go to a high street lender and talk to an adviser they will have to recommend one of their own products, however this may not be the best product for you. A mortgage broker can find the best suited remortgage product with the best rate for you.
The Credit Crunch
In the US many people were given mortgages they could not afford to pay. These mortgages were given to sub-prime borrowers i.e. borrowers whose credit histories were far from perfect. This led to a global credit crunch and in the UK a liquidity crisis arose. Lenders in the UK tightened their criteria and became more risk adverse. Therefore lending became more difficult and mortgage rates increased. Remortgaging to consolidate or to make refurbishments to your house is now much more costly than it was and is becoming a less viable solution.
Dangers of Remortgaging
Remortgaging can be a solution to debt problems and consolidating all your debts so you just have one monthly payment is a good idea but must make sure you are not biting off more than you can chew. Your mortgage broker should make sure you are not borrowing too much money for you to repay and your lender should not lend irresponsibly. It my be tempting to borrow a large sum of money and clear your debts but with mortgage rates higher than they have been for some years your repayments may be more than you can handle leading you further into debt than you were.
Of course there is also the risk that, should you be unable to make the necessary repayment, you could lose your home. Repossession is a heartbreaking issue for any family and if you know the remortgage will put you at risk then you should seriously reconsider. You should talk with a debt counsellor before taking on any financial commitments and he or she should be able to advise you on the best route to take.