As a mortgage professional, you will be interviewing potential customers who are looking to obtain a great deal, so you will encounter many different borrower types and scenarios.
One particular situation is when an existing borrower approaches a lender looking to increase their borrowing without moving house, instead consolidating any unsecured debt that they have accrued. Generally, unsecured debt is repaid at a higher rate of interest, making it an attractive option for those looking to repay their debts at the lowest rate possible. So, how does it work?
What is it?
A debt consolidation mortgage means that providing there is sufficient equity in the property and it meets lending criteria, money is advanced to the borrower to repay their unsecured debt, with it secured against their property.
Many people face a monthly battle when it comes to juggling their finances to make ends meet. However, if they are just making the minimum payment, then it is mostly only the interest that is being repaid, meaning the amount owed reduces very slowly.
Options available to borrowers
There are two main routes that the borrower can decide between:
1-Remortgage to another lender, borrowing the additional monies required
Depending on the deals being offered, the borrower may decide to move their entire mortgage to another lender (remortgage) and also request the additional amount required to consolidate the debt. This could reduce the rate on their existing arrangement, as well as the monthly saving by consolidating the debt. It means that the borrower will have just one monthly payment as opposed to several, making budgeting much easier.
2-Borrow additional monies against the property with existing lender
Again, dependent on the current rates available, it may be that the existing mortgage rate is the best one, so it would not be beneficial to change lender. Depending on the equity in the property, and subject to the lending criteria, the borrower can apply for additional borrowing to increase their mortgage and use the monies to repay unsecured debt. This would mean that the rate of interest is reduced, bringing the monthly payments down and meaning that with one payment the budgeting of monthly outgoings is easier.
The role of a mortgage adviser
As a mortgage professional, you will conduct a full affordability assessment on your customers to assess their needs. If a debt consolidation is the appropriate solution, you work within the processes and procedures of your employer, as well as the regulation set out by the Financial Conduct Authority, to best help your clients.