Debt Consolidation Loan or Mortgage

KK14 · 16 January 2020 at 1:37PM

I am very lucky to own my house outright after an inheritance.

However, I want to consolidate some debts & make some further home improvements so do I go for a loan or a mortgage?

If I went for a mortgage then what sort of mortgage do I need? I did previously own a house so I’m not a first time buyer.

The mortgage interest rates look very attractive & I would end up paying a lot less a month than I do now but as I am
self employed then there may be issues with lenders.

I am applying with my partner & we have both had credit issues before but these are improving. I know we can get a mortgage in both our names but it doesn’t seem possible to do this with a loan?
Has anyone got any advice?

Willing2Learn · 16 January 2020 at 1:45PM

Debt consolidation will only be successful if you have first addressed the weaknesses in your budget, that has resulted in your debt.

KK14 · 16 January 2020 at 2:06PM

It is primarily to pay back a loan for initial home improvements & a car finance loan so the mortgage would pay it off & reduce monthly payments by £600 a month between us.

Willing2Learn · 16 January 2020 at 3:06PM

But on the down side, you will be turning your unsecured debt into debt secured against your home.

DCFC79 · 16 January 2020 at 3:51PM

KK14 wrote: »

It is primarily to pay back a loan for initial home improvements & a car finance loan so the mortgage would pay it off & reduce monthly payments by £600 a month between us.

Would it though, no guarantee it would reduce the payments by that amount, could be less.

Have you sat down and looked at your spending, ditch the sky subscription, shop at Aldi/Lidl, ditch the expensive brands you buy.

enthusiasticsaver · 16 January 2020 at 4:52PM

Several red flags from me.

You have previous credit issues and are self employed and both these will have an impact on any borrowing, unsecured or secured. You may not necessarily get a good interest rate even if the mortgage or loan is agreed.

Rarely is it a good idea to consolidate debt on to a mortgage as it risks your home and if you have debt that indicates you are living beyond your means particularly if self employed with erratic income. You need to sort this out first before committing to securing your home on any borrowing.

Why would you secure a loan for a car on your house?

Borrowing against your house is a slippery slope and many people fall into this trap seeing their house as an asset to be mortgaged and used to pay for other stuff like cars, previous debt built up etc but primarily it is a home. If you cannot keep up payments on the mortgage you will lose the house. If you default on an unsecured loan there is very little that can be done other than trash your credit record. As you probably have guessed I would advise against it.

I would advise.

Get your budget sorted so you are living within your means.
Continue with the existing car finance or move to a cheaper unsecured loan when you are able to.
Home improvements can be put on to a mortgage but most mortgages from high street banks are minimum £25k.

Also bear in mind that whilst you may save on monthly payments if you can get a loan approved the only reason for this is because the loan is spread over a much longer period and will usually end up more expensive even if the underlying interest rate is lower.

Debt Consolidation Loan or Mortgage

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free