If the holiday season has left you with a financial headache, why not remortgage? It can get you some ready cash – and a better deal, says Alex Hammond of Your Mortgage magazine
How festive was your season? Chances are, the more festive it was the bigger the financial hangover you now have to deal with. And as the seasonal colours turn into bank account red, you might have to start showing the colour of your money. If you don’t want to spend the whole of the New Year repairing the destruction of one festive season, you need to take action. And you can do this with a little help from your mortgage.
Spread the load
Tony Jones, managing director of Pink Home Loans, which has launched its mortgage advice service for borrowers, says: ‘Using your mortgage instead of short-term borrowing, such as credit cards and personal loans, to consolidate Christmas debt has its advantages. The interest rate will usually be lower and the debt is spread over a longer term.’
One way to repair your bank account is to top it up with money from a further advance on your mortgage. If you have equity in your homes, a number of lenders will lend you some extra cash, which is added to your mortgage and paid off at the mortgage rate. You don’t necessarily even have to tell the lender what the money is for, but some will lend a different amount depending on this. Nationwide, for example, allows additional borrowing of up to 95 per cent of your home’s value (including the amount of your existing mortgage) if you are using the money for home improvements, or up to 85 per cent for other purposes.
A further advance could be useful if you need money in a hurry, but if you are going to start reviewing your mortgage you may as well consider switching it completely to get a better rate. You could even receive a little extra cash and still save money on your monthly repayments if you get a really good deal.
Many lenders will lend you more than 90 per cent of your home’s value but the cheaper rates are reserved for lower loan-to-value (LTV) mortgages. So if you borrow more it could mean you end up paying a more expensive rate.
Plus, it is, of course, all still extra borrowing. Jones warns: ‘The disadvantage of using your mortgage to consolidate debt is that you risk eroding your equity. This is a concern when house prices are falling. If you can’t keep up repayments you could lose your home.’
Do your homework
Jones offers some advice. ‘First, I’d look closely at the terms of all the deals,’ he says. ‘Fees can vary dramatically and if you are only borrowing a small amount it can make the difference between a good deal and a bad deal. Also, make sure there are no early repayment charges – and if there are, make sure the rate is low enough to justify them.
‘On balance, and if you are sensible, a remortgage is a good way to help with your financial planning. There are some very attractive deals out there and with the property market slowing, lenders are working harder to attract your business.’