Difference between a Debt Consolidation Mortgage and Remortgage

loveandlight

Is there a difference between a Debt Consolidation Mortgage and a Remortgage where you are taking some equity out of your property in order to repay some debts?

I'm not talking about the interest side of things more from whether a debt consolidation mortgage damages your credit file.
Thanks.

herbiesjp

no difference - and it does not affect your credit rating in a bad way

loveandlight

no difference - and it does not affect your credit rating in a bad way

Thanks for replying. I'm actually being forced to repay some debt by my new lender on completion and I'm very upset with my mortgage consultant because he never told me this would happen. All my paperwork is referring to my new mortgage being a debt consolidation mortgage with the B'ham Midshires when I thought I was just doing a simple remortgage and repaying some debt.

Now whilst the remortgage is going through I'm having to sign declarations and give a formal Undertaking that my money will be used to immediately repay my debt on completion. I'm not being given any control at all over it.

My credit rating is very good and I have no history of not paying my debts or being in arrears etc. So now I'm worried about why I'm having to do this as if I can't be trusted. I've spoken to my mortgage consultant and he's just making light of it.

Rick62

The amount of debt you have can affect the lenders 'affordability calculator', so the amount they are willing to lend is affected by how much debt you have and if this is being paid or not. Presumably they were happy with your required mortgage amount only if the debt was paid.

Have they given you a prime 'mainstream' mortgage or an adverse mortgage?

jamesd

You can seek a mortgage and if you get it can use it to repay debt. The debt monthly repayment costs will be included in affordability calculations and may block you from qualifying.

You can seek a mortgage to pay debt. Then the mortgage ledner wants to be sure the debt is paid and the monthly debt payment costs will not be included in affordability calculations, so you're more likely to get the mortgage. The mortgage lender is just trying to protect their interests, which are making sure that you use their money for the purpose for which they agreed to lend it.

Birmingham Midshires - through BM Solutions - is known as a lender to those who cannot qualify for a mortgage at normal rates, lending to them at a higher rate. So:

What are the terms of the loan - interest rate, amount borrowed, your salary, any debt issues? All the details from the key facts illustration would be nice.

This will let us get some idea of whether you're getting a good or at least fair deal.

loveandlight

Thanks so much to you for your replies. I really appreciate it. I can't give you a full reply as I find it hard expressing myself without it becoming very long and turning into a book! (sorry - it's still long!)

I understand now the points you're making about affordability. My broker took it very lightly with me as he was satisfied that my earnings more than covered the amount of mortgage.

I'm upset with my broker for the reasons I said earlier because he didn't disclose at all that a lender might want to take control of my debt repayment. This has come as such a shock to me and to be made to sign declarations and give undertakings and have them witnessesed I find very upsetting. It does seem as if my mortgage is an adverse credit one even though my credit is very good and I have no records of late payments anywhere.

My new mortgage will be a self cert 90% variable rate mortgage. Currently 4.75% with 1.99% above Bank of England Base rate giving a total interest rate of 6.74% for 18 years. Interest only because I'll be redeeming it again in a few months time.

My debt is actually £30,000 but was incurred because I used the very good interest rates I have on my credit cards and invested the money in doing up property and as a result I have made a very handsome profit. Now I feel as if B'ham Midshires are treating me as if my debt is bad but it has only recently been incurred and I had planned to pay off £20,000 now and the remaining £10,000 within the next few months anyway as I have my house on the market for sale.

The other thing is because the lender is now demanding that I repay my debts at completion it is likely that I will lose some of my credit lines which I need as I am self employed and I know cards like Amex and Morgan Stanley are lowering credit limits once lump sums have been paid and I'm worried that this might happen to me now. I had wanted to pay off the £20,000 in my own time so I could arrange some back up credit facilities in case my credit limits got reduced but its all been taken out of my hands now.

I just never knew that this kind of thing could happen when remortgaging. If I had been told it by my broker I would have just waited until my property had been sold and paid it all off then.

I also went to see my broker today and he said he knows I'm not like it but he was going on about how people take the remortgage money and run and don't pay debts etc but I feel like I'm still being treated like I'm going to do that.

jamesd

Discuss this with your broker to see if it's viable to get a deal that better meets your needs. Self-cert and the borrowing may well be why the broker suggested BM Solutions.

loveandlight

Discuss this with your broker to see if it's viable to get a deal that better meets your needs. Self-cert and the borrowing may well be why the broker suggested BM Solutions.

When he did a search for me a lot of lenders came up willing to lend to me. When I told him the other day how shocked I was at the way I'm having to give written undertakings for debt repayment etc he said most lenders are like that. I don't trust him at all now so won't be going to him again. I've already paid nearly £1000 in various fees so I'll just keep this mortgage for a few months and change it once my property is sold. But I will be changing my broker!!

Thanks again for your help.:D

Rick62

Did you need a 90% mortgage (based on the current property value) or would 85% have been enough, and did you need to go self-cert or could you proof sufficient income?

Depending upon your circumstances it is very hard to say, it could be that your broker has done a very good job in sourcing the mortgage but he has done a poor job of explaining what is involved.

The payment of the loans/credit cards I think is common and it does not reflect badly on you or your credit. I would be surprised if your credit cards change much, if you have been a good customer (i.e. always paid) they will want to keep your custom.

loveandlight

it could be that your broker has done a very good job in sourcing the mortgage but he has done a poor job of explaining what is involved.

Exactly and this is why I'm upset with him and won't be using him again. If I hadn't read through the small print and highlighted it myself I would never have known until the eleventh hour.

I would be surprised if your credit cards change much, if you have been a good customer (i.e. always paid) they will want to keep your custom.

You would think so but if you go to the credit card thread you will see lots of people who've handled their card accounts well and are now having their card limits dramatically reduced.

Thanks for replying.