Remortgage with Credit Card Debt
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Remortgage with Credit Card Debt
Ashleigh Halit returns to explain how remortgaging with credit card debt works.
What is a debt consolidation remortgage? Can I remortgage with credit card debts?
Quite simply, a debt consolidation mortgage is where you take out extra equity from your property to pay off your unsecured borrowing. Or, it could be that you’ve got an existing secured loan against your property.
You’re effectively putting all your debts together and adding it to your main mortgage. Usually, people do this to reduce their monthly outgoings and manage their money better.
You can consolidate credit card debt into your mortgage. There are certain things we look at here, in terms of the debt outstanding on the credit card. We wouldn’t usually suggest consolidating anything under £1,000.
It’s really important to note that when you’re consolidating debt, you’re taking that debt over the term of your mortgage. You could be extending the time you’re repaying that debt, which means that you’ll be paying more interest in the long term.
We always point that out to clients. But usually somebody interested in debt consolidation is keen to reduce their monthly outgoings, to help them cope better financially.
How will credit card debt affect my remortgage application?
Most lenders will only consolidate a debt that’s over £1,000 at least. We also need to consider the interest rate – because you could have 0% interest on a credit card. It wouldn’t be good advice to consolidate that debt if there’s no interest.
Your broker should have already assessed that part before it got as far as the lender’s desk.
Another point to note is that most lenders won’t go beyond 85% Loan to Value if there’s an element of debt consolidation involved. There are lenders that will go higher, to 90% and even 95%, but only a handful.
If you’re remortgaging and not intending to consolidate your credit card debt, as long as the mortgage payments meet affordability, you can keep the credit cards in the background. Your broker would go through an affordability check and see if it’s viable for you to leave the credit cards as they are, rather than consolidating them into your mortgage. Each case is individual and assessed on its own merit.
What is the eligibility criteria for a remortgage for debt consolidation?
The main point is that Loan to Value restriction – basically, you can only take out so much borrowing against the value of your home. With most lenders the limit is 85%, but some will go a little bit higher.
We will make sure you’re doing it for the right reasons, and not putting yourself in a worse position by adding it to your mortgage. Those are the main points around consolidating credit card debt against your mortgage.
My mortgage application was declined. What can I do?
If you’ve approached the lender yourself for the mortgage, not a broker, contact the lender and ask them if they can give you more information about why it’s declined. They don’t usually give you much detail, but you can request in writing access to your file.
It’s called a data access request, and could help you find out why that has declined. If you are using a mortgage broker, they should be able to contact the lender on your behalf.
It could be that when they carried out the research you fit the criteria but something they couldn’t see, or were unaware of, cropped up in the background. The good news is that if your application does decline, there are probably another hundred lenders we could approach for a mortgage. So don’t worry too much.
To avoid these situations, rather than just going to your high street bank, see a broker. We can usually avoid applications being declined. You really need to be upfront and honest with your broker about what’s on your file – the more information you provide upfront, the better. Then, the recommendation coming back to you is much more likely to pass.
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How much can I remortgage for with credit card debt?
It depends on your situation. You can remortgage for however much you want, up to the value of the equity in your property. Lenders will go up to 95% Loan to Value as a maximum, but most sit around 90%.
As an example, if you had a property worth £100,000 with a £10,000 mortgage on it, you could potentially take £90,000 out as a maximum – minus the £10,000 that you owe. That would leave you with £80,000 in additional borrowing.
It does just depend on the equity that’s in your property, and of course you need to be able to afford the repayments. You might have a £1 million property and be able to release £800,000 from it on a remortgage – but your income might not support paying that mortgage back.
It comes down to the equity in your property, how much you earn and the timeframe you’re going to be taking that mortgage over. If you’re coming up to retirement and are only able to take the mortgage over 10 years, you can’t take as much because of the affordability element.
If you’ve got 35 years left, a good income and a lot of equity, you might be able to take the maximum allowable against the value of your property.
With credit card debt on top, you’re going to be assessed on your income, affordability and the equity in the property – but as I mentioned earlier, most lenders on debt consolidation will cap the Loan to Value at 85%.
What are the key things to know when remortgaging with credit card debts? What are the advantages and disadvantages?
The disadvantage is that you will be spreading the debt over a longer term. You may end up paying more interest back. Another disadvantage is that sometimes people pay off their credit card debts but don’t actually close their credit card accounts. There can be the temptation of spending on those cards again.
You could double up the original debt – because you owe it against your mortgage and now you’ve maxed out the credit card again.
Some credit cards come with special offers such as air miles. If you do pay the credit card off and close it down, you might lose some of those special offers.
But the big advantage of doing it is to reduce financial pressure. Your credit card payments could be quite high and you want to reduce your monthly outgoings as a whole. Perhaps you’re only able to ever pay the minimum payment, so your credit card balance is never reducing. Clearing them all off into one monthly payment can be more manageable.
Can you consolidate credit card debt twice?
We’d like to hope that you wouldn’t need to, but we do appreciate that sometimes people do go back on those credit cards. It can be done, and we’ve arranged this a few times.
Occasionally clients do go on to reuse their credit cards because they’ve needed to pay for something quickly. We’ve got clients that have paid off their credit cards and then came back three years later – they’re doing building work and the cards gave them quick access to money.
It does depend on the reason behind that spending. Some lenders will ask why you have re-spent on them after paying it back. Running them all back up to their limit within six months doesn’t look good, and won’t sit well with some lenders.
But I do think there’s something out there for most people and situations. With niche and specialist lenders this would still fit within their credit criteria – and even some high street lenders.
Is it better to have a personal loan or credit card debts when remortgaging?
You can potentially consolidate both credit cards and personal loans. Again, it would be assessed based on how long you have left to pay on that personal loan. If you’ve only got six months left, we would advise you not to consolidate. That’s going to put that debt over the whole length of your mortgage term – which could be 25 to 30 years.
So sit down with your broker and look at what’s most important to you. If you would prefer to keep your personal loans and credit cards and pay them off quickly, you wouldn’t consolidate them with your mortgage. If you need to save as much money as possible each month, consolidation could be the right thing to do.
You’ve demonstrated how a mortgage broker can help. Is there anything else we needed to know here?
A mortgage broker can be a very valuable resource because we have access to so many lenders. We know the criteria. But, of course, it only works when you’re open and honest with your broker about your situation and any background history they might need to know.
If you are struggling financially, let your broker know – this is really important information to help guide us in the right direction.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
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