RELEASING EQUITY (HOMEOWNERS)
Releasing equity in your property, either via a remortgage or a secured loan, involves you replacing or extending your existing mortgage, or taking out a loan against your property to borrow money. The released funds can then be used to clear your debts.
Advantages
- Equity released from your home can be used to pay off your unsecured debts, potentially consolidating them into a single payment.
- Remortgaging might allow you to secure terms better suit your current financial situation. The monthly payment on a remortgage is often less than the combined total of your existing debt and current mortgage payments, easing the management of multiple debt payments.
- Remortgaging may allow you to secure a lower interest rate than your current mortgage.
- The interest charge for a secured loan is generally lower than unsecured credit agreements, which may lead to lower monthly payments. .
Disadvantages
- When remortgaging, you may incur an early settlement charge (‘Early Redemption Charge’) if you pay off your current mortgage before the end of its term.
- Your home is at risk if you fail to keep up with your mortgage payments. Additionally, while monthly payments may be lower when you consolidate unsecured debt into your mortgage, spreading payments over a longer term can result in paying more interest overall compared to keeping debts unsecured for 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 your ability to remortgaging or move to a new house in future. Interest rates may rise, potentially resulting in higher mortgage rates when remortgaging or buy in future.
- Failure to maintain your mortgage payments can negatively affect your credit rating or credit score.
