Can a Mortgage Broker Help You Pay off Your Debt?
Having a lot of debt hanging over your head could make for some sleepless nights. It is never fun to lie awake wondering how you are going to pay off what you owe. If this sounds like you, here’s a question: could a mortgage broker help you pay off your debt?
There are traditional mortgage brokers who work out of brick-and-mortar offices and represent a variety of lenders and products. There are also online brokers, like theMortageBroker, who reduce expenses and increase convenience by doing everything via the internet. Both kinds of brokers have the skills and products that could change your financial circumstances by helping you get out from underneath stifling debt.
Your House is a Financing Tool
The place to begin this discussion is with the idea of your house being a financing tool. Your house represents the single largest financial investment you will likely ever make. What did you pay for your house? For the purposes of this discussion, let us say you paid £150,000. You put down £50,000, leaving you with a mortgage of £100,000.
Now let’s say you have £35,000 left to pay on your mortgage, but your home is now worth £185,000. The difference between what you owe and what your home is worth on the open market is £150,000. This is your home equity. You can borrow against that equity and use the cash to pay off more expensive debt like credit cards, personal loans, etc.
There are a couple of ways you can borrow against your equity. The first is a secured loan. The second is a remortgage. A mortgage broker can work with you to take advantage of the remortgage. Should you choose a secured loan, also known as a home equity loan, there are different ways to go about that as well. The rest of this post will focus on remortgaging.
Raising Money by Remortgaging
Our fictional example leaves you with £150,000 in equity. If your mortgage broker can secure a remortgage for £100,000, you would have £65,000 to apply toward your debt and still have £50,000 remaining in equity.
Do you see what has been accomplished here? You have used the equity in your home to secure a remortgage product worth more than what you owe. That extra cash goes toward paying off your more expensive debt.
This makes sense as long as the total cost of borrowing on a remortgage product is less than continuing to pay your existing debt as-is. In many cases, this is exactly what happens. Interest rates on re-mortgages are lower than credit cards, personal loans and the like, making for lower monthly payments and less total interest paid.
Of course, things do not always work out this way. Sometimes the term of a remortgage is so long that the consumer ends up spending more when all is said and done. This is why the advice of a certified mortgage broker is so invaluable.
Seek Out Free Advice
That last point about getting advice from a mortgage broker is critical to figuring out whether or not you can save money through a remortgage. It is best to seek out brokers willing to give free advice, as you do not want to be locked in by agreeing to a financial arrangement before you even know what your options are.
Not all mortgage brokers offer free advice, so you’ll have to look around. Also note that advice is just that. Whatever decision you ultimately make should be the result of plenty of research, careful calculations, and an honest assessment of your needs.
Improving Your Credit Score
One final point relates to improving your credit score by remortgaging. Again, the context here is remortgaging to pay down more expensive debt. That more expensive debt could be hurting your credit score if you are having trouble keeping up with it.
Lenders look at a lot of things that combine to make up your credit score. One of the most important is your history of payments. Simply put, your credit score will be higher if you make all of your payments on time. Making a habit of late payments is a sure-fire way to reduce your credit score.
Let’s say you have multiple high interest credit cards and a couple of personal loans you’re trying to pay off. All of them combined really stress your budget. As a result, you tend to miss payments here and there. How could remortgaging help? By consolidating all of those debts into a single monthly mortgage payment that is less than all the rest combined.
Reducing your monthly outlay makes it easier for you to make your payments on time. This will help your credit score by proving to lenders that you can keep up. So as you can see, working with a mortgage broker can indirectly help improve your credit score if he or she can find you the right kind of deal.
Can a mortgage broker help you pay off your debt? Absolutely. The right kind of deal can also save you money and improve your credit score the same time. If you are currently struggling under a mountain of debt, seek out some free advice from a qualified mortgage broker. Doing so could be the best financial decision you have ever made.