RELEASING EQUITY (Homeowners Only)
Releasing equity in your property, whether via a remortgage or secured loan, to pay off debt involves you replacing, or extending, your existing mortgage, or taking out a loan against your property in order to borrow money. You are then responsible for using the released funds to clear your debts.
- Equity released from your home can be used to pay off your unsecured debts.
- You may be able to remortgage with terms that are more suitable to your current situation. A remortgage monthly payment will usually be much less than the total of your existing debt and current mortgage monthly payments, taking away any difficulties with managing multiple regular debt payments.
- Remortgaging may be at a lower interest rate than you have with your current mortgage.
- Remortgaging to clear debts may be easier to manage, giving you one monthly payment to make rather than several covering individual debts and your mortgage.
- The interest charge for a secured loan is typically lower than that applied to unsecured credit agreements.
RELEASING EQUITY - DISADVANTAGES
- When remortgaging, you may incur an early settlement charge (‘Early Redemption Charge’) as you will be paying off your current mortgage before the end of its term.
- Your home is at risk if you do not keep up with your mortgage payments. You may end up paying more over time by moving unsecured debt amounts into your mortgage. Lower interest rates spread over a longer period of time may make monthly payments lower and easier to manage but can result in you paying back much more than you would by keeping debts unsecured over a shorter term.
- You may not have enough equity in your property to pay off all your debts.
- Remortgaging to pay off debt could affect you remortgaging/moving to a new house in future. Mortgage rates may rise in future, and extending your mortgage now could lead to you being offered higher rates when remortgaging/buying in future
- Failure to maintain payments may affect your credit rating/score.