One solution to debt is to refinance. If you own an asset, such as a house then you may have equity within your home. This is known as a remortgage. The equity is the difference between what your house is worth and the remaining mortgage and any other secured lending.
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Unlike a debt solution, such a bankruptcy, refinancing and using the money to pay your debt will not negatively affect your credit file.
Benefits of refinancing
- If you have enough equity within your asset (house, car etc) you can clear your debt quickly in comparison to other solutions
- A refinance does not get recorded on your credit file. However, if you have defaulted on payments prior to refinancing then your creditor may have added it to your credit file
Negatives of refinancing
- You will need to have enough disposable income to cover the additional secured debt
- Any available money within your asset will be used to repay your debt. As a result you may no longer have any equity left within your asset (e.g. house). This means your unsecured debt will become secured against your property.
If you remortgage your property and don’t maintain the monthly payments your home will be at risk of repossession.
– Your unsecured debt would be £5,000 or greater
– You must have sufficient disposable income to cover the additional repayment
When you remortgage you are switching your mortgage from one deal to another, which may involve moving lenders. You will be increasing the amount of secured debt you owe and it will take longer to pay off your home.
Whilst each mortgage lender has a different process we have identified key stages for you.
Step 1: Your existing mortgage lender will confirm the outstanding balance
Step 2: You will be sent legal documentation once it has been established the equity within your property is sufficient enough to repay your unsecured debt
Step 3: Your existing mortgage will be repaid
Step 4: You will be sent a cheque for the difference between your existing mortgage and the value of your property (minus any fees)
Step 5: You mortgage deeds will be updated to reflect the change of lender and this information will be stored in the Land Registry.
If you joint own a property with someone else you can still remortgage to release your share of the equity if the other person agrees to it.
After the mortgage offer has been made your remortgage will be completed within a month.
The only people who will know about your remortgage will be the mortgage lenders (new and existing) and anybody who jointly owns the property with you or is a tenant. The deed will be registered in the Land Register which can be viewed by the general public.
Depending on the value of your property and the amount of your unsecured debt, you could have money left over after the remortgage has been completed.