Remortgage With Credit Card Debt
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Remortgage With Credit Card Debt
Carolyn Dunion explains the process of remortgaging with credit card debt.
What is a debt consolidation remortgage? Can I remortgage with credit card debt?
A debt consolidation remortgage would be releasing some equity you have in your property and increasing the mortgage you have to clear off unsecured debts. It could be credit cards, loans or hire purchase agreements – those sorts of things.
How does credit card debt affect a remortgage? How will credit card debt affect my mortgage application?
Your credit card debt will be taken into consideration for a remortgage if it’s currently in place. Lenders will want to know your current balance and how you’ve operated the account.
They don’t want to see missed payments, etc.
If you consistently use more than 90% of the limit on a credit card, even if you’ve not missed any payment, most lenders don’t like to see that. It might lower your profile in their eyes. It helps not to be sitting with that kind of high balance.
If you are remortgaging to pay that debt off, that’s less of an issue, but a credit card debt that’s continuous will be included in the affordability calculations. Lenders look at how much it’s going to cost you to service that and how well you’ve looked after the account.
Credit cards are supposed to be revolving debt, where they get cleared or close to cleared before they ramp up again. Lenders don’t like to see a static balance with just minimum payments being made. If you can avoid that, that’s a good thing.
What are the eligibility criteria for a remortgage for debt consolidation?
It’s much the same as the criteria for any type of remortgage. Lenders look at your credit worthiness, your credit report, your affordability and how much equity you have in your property.
If you are doing debt consolidation, it’s much better to start the debt consolidation before you get to the point of missing payments. It becomes harder if your credit profile has been damaged, so early action is better.
My remortgage application was declined. What can I do?
This is where advisers really come into their own. If one lender won’t lend to you, it doesn’t mean every lender won’t. Certainly at McKendry Dunion, we always strive to get the right lender first time round. We do that by getting to know our clients very well and also knowing the lender’s criteria.
Sometimes things are declined for things we can’t foresee, in which case we would move to a different lender. Perhaps it’s an unusual type of property or there’s something on your credit file we hadn’t anticipated.
But there’s usually somewhere we can take an application – it’s uncommon for us not to be able to do anything to help.
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How much can I remortgage for?
It will depend on your affordability, where the lender makes a calculation about your income versus your committed expenditure. They also consider the value of the property. Each lender will have different criteria around how much you can remortgage for, and you always have to leave some equity within the property.
What are the key things to know when remortgaging with credit card debt?
The disadvantage is that you’re turning unsecured debt into secured debt. If you think of the worst case scenario, if you didn’t pay a credit card, it’s unlikely you would ever lose your home because of that.
You might have to deal with having adverse credit on your file, but it wouldn’t affect the roof over your head. But secured debt is mortgage debt. If you fail to maintain your mortgage payments, the lender can repossess the property, which is obviously something you want to avoid.
So turning unsecured debt into secured debt is a significant thing to do – you need to be aware of that. But if you’re sitting with a credit card balance on a high interest rate and don’t have a way to clear it, remortgaging can be a solution. At least you’re starting to repay that debt and get rid of it.
Mortgage interest rates tend to be lower than credit card rates, so it’s often a way out of a difficult situation.
Can you consolidate credit card debt twice?
I’m taking this to mean that you have built up a balance on a credit card, remortgaged to pay it off and then gone away and built up the debt again.
Theoretically, assuming your affordability and equity in your property stacks up, you can consolidate twice. But we would always ask, without judgement, how you’ve ended up in this position for a second time.
If you are consistently living beyond your means, that’s something you really need to address. If there’s other legitimate reasons for it and consolidating is the right solution for you, then it can be done.
Is it better to have a personal loan or credit card debt when remortgaging?
If somebody is very young or they have been out of the country for an extended period of time, they might not have any kind of credit profile.
When a lender does a credit check on you, they want to make sure you don’t have adverse credit, and that you can handle a credit facility and use it responsibly.
If you’ve had no profile at all, it can be difficult for the lender to make that assessment. First-time buyers are therefore advised sometimes to take a credit card out and use it responsibly, which means paying it off every month and not going mad.
That will help build your credit profile and show you can handle that credit commitment. It can be useful in that circumstance, but if you’re remortgaging, you will already have had a mortgage for a period of time. It’s therefore unlikely you would need to build your profile with the use of a credit card or a personal loan. It’s not giving you any extra points.
How can a mortgage broker help here? Any final points?
When you’re doing a debt consolidation mortgage, it’s absolutely essential to get advice – because you’re turning unsecured debt into secured debt.
Whilst it might seem to be an attractive, easy way to deal with debt, just make sure that it’s the right way forward for you and you fully understand what you’re doing. Certainly, an adviser is invaluable in helping you make those considerations.
Key Takeaways:
- A debt consolidation remortgage involves releasing equity in your property to increase your mortgage and pay off unsecured debts like credit cards, often at a lower interest rate.
- Lenders consider your credit card debt and scrutinise your account operation, preferring to see no missed payments or a static balance with only minimum payments.
- The main disadvantage is that you are converting unsecured debt into secured debt, which means your home is at risk of repossession if you fail to keep up with your mortgage repayments.
- It is possible to consolidate credit card debt twice, but you need to address the underlying reason for accumulating debt again, such as consistently living beyond your means.
- It is essential to seek advice from a mortgage broker when considering a debt consolidation mortgage to fully understand the implications and ensure it is the right solution for your financial situation.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.