Everything you need to know about debt consolidation remortgage and refinancing

If you find yourself with one or more loans and are looking for a refinancing offer, here are some things you should know. There are countless cases where we get lost in a large number of cards/credits/discounts and maybe even miss a specific due rate. It is precisely why debt consolidation is recommended, firstly for the convenience of having a single installment and secondly for a lower total installment than what we were paying monthly before debt consolidation remortgage.

According to nerdwallet.com, debt consolidation remortgage is essentially refinancing all your loans into one. And, in most cases, a lower rate. Why? Because, for example, we can have two personal loans, a credit card, and an overdraft. We have a remaining period and an interest rate for each of the two remortgages. And credit cards and overdrafts have higher percentage values than loans. The fact that we have withdrawn a certain amount from the card and solved a particular problem does not mean we have to remain "stuck" with those rates. By refinancing the above four facilities, it is possible to benefit from a refinancing offer with a perfect interest rate. And we will ensure that by refinancing, including the cards, we will eventually be able to repay the debt fully and not just pay the interest.

In addition, a remortgage can help you to get a much lower interest rate. An eloquent example is if you have taken out a loan with a high-interest rate, which was the only option available at the time because, for various reasons, you did not fit in with bank A or B. Perhaps at the time, you are considering refinancing your loan with any bank, the credit conditions have changed, or you meet the eligibility criteria.

What is consolidation?

The term 'consolidation' comes from Latin and means strengthening something or bringing together different things to form a stable whole. The term 'consolidation' is used differently in economics and business administration.

Economic consolidation occurs when a country's economy recovers after a recession or depression, and financial data show positive signs. Business administration uses the term consolidation in two different contexts: on the one hand, in connection remortgage, and on the other, in the context of a group's annual financial statements.

Loan consolidation

It affects businesses, private households, and the public sector equally. Many short-term loans are converted into long-term loans, and the background may be, for example, lower interest rates in the meantime. In addition, consolidating several loans into one simplifies cash flow control: previously, there were many short-term debts with several lenders, and reducing debt funds with one lender also facilitates processing.

Loan consolidations can also occur in connection with long-term financing that has not yet been secured. In this case, a short-term loan is taken out, but it is replaced when a lender is found for long-term financing.

What is the debt consolidation remortgage?

Contrary to the common understanding of the words consolidation, when we talk about debt consolidation remortgage, we refer to the re-arrangement of debts intending to finish them sooner. The most common situation is to 'spread' them over several credit cards, lines of credit, and fixed monthly payment loans. As well as damaging your credit history, it also hurts your pocket because of the generally high-interest rates on credit cards.

The solution, in principle, is to combine them into a single multi-year installment remortgage, which generally has a lower interest rate than credit cards. For example, for 20,000£ debt spread over four credit cards, the minimum monthly payment is usually 3%, £150 for each, so £600. Some banks require a lower minimum amount than 3%, which translates into longer loan repayment times. If the same debt is consolidated into a 5-year personal loan at 10% interest, the monthly payment is £425. Depending on the total amount, it can spread over several years, and the interest rate can be different. The advantage is that you can be sure that you will finish paying off the debt while paying the minimum on credit cards can extend the debt for more than ten years.

When is debt restructuring possible?

Debt restructuring is considered a total early repayment. This is possible at any time. There is no legal notice period. It is different with mortgage financing: until now, there has only been a limited right of termination. Therefore, a debt consolidation remortgage is only possible after the end of the fixed interest rate or - for all loans with a fixed interest rate of more than ten years - ten years after the payment or the last contractual adjustment.

Should you apply for credit lines?

In general, the minimum payment required on a line of credit equals the monthly interest, at this rate, so the debt remains forever. If, on the other hand, you're being dramatic and stretching yourself 'as far as the eye can see, the line of credit can be a good solution if you want to invest, renovate or get by for the time being.

There are also more drastic solutions for more dramatic situations like proposition bankruptcy, but these remain part of your credit history, so try to avoid them. When you own a property, you can refinance the property and use the surplus to consolidate debt. You can then rely on the fact that over time the value of the house has increased, and any remortgage has decreased. An approved appraiser estimates the current value of the property. Be careful, though; the bank checks not only the value of the house but also the client's current situation, place of work, and credit history. You can apply for a debt consolidation remortgage up to 80% of the property's new value.

What is the best remortgage repayment strategy?

Both the snowball and avalanche methods can help you get out of debt and remortgage situations. The answer to which strategy is better depends on your financial needs and behavior.

However you approach it, the important thing is to educate yourself and do the calculations for the debt consolidation remortgage so you can take the stress off and progress towards getting out of debt as easily and quickly as possible.

Alicia is a professional writer for ukmoneyman.com. Having a mortgage broker by your side will give you the chance to be informed of the options that are available to you based on your financial and personal circumstances.