Remortgaging - a good way to control debt?
For much of the last decade, house prices have been rising - rapidly. Someone who bought a house for £80,000 in 2000 could easily have seen that value double in just six years. Of course, they couldn't actually use that 'extra cash' unless they sold the house or found some way to 'release' the equity. But there are ways of doing this.For a lot of people, this has proved a realistic way to help them control their debt. Someone who ran up £20,000 of unsecured debt, for instance - in the form of personal loans, credit cards, etc. - might have chosen to take out a larger mortgage and pay off those unsecured debts in one go.
Of course, that meant they were securing their debt against their property, potentially putting the property at risk if they couldn't keep up with the payments. And of course, repaying a debt over a longer timeframe could add to the overall cost of repaying it.
Even so, the interest rates on mortgages tend to be far lower than on the typical credit card - and consolidating their debts with a mortgage can significantly reduce someone's overall monthly expenditure.
So it's no great surprise a lot of people chose to do this. Even today, with house prices uncertain and - in many areas - actually falling, plenty of people are living in homes that are worth a lot more than they paid for them. So remortgaging is still a viable way for many homeowners to control their debts.
Having said that...
That doesn't mean it's the best way to tackle debts. There are other options out there that can help homeowners who don't want to secure debts against their property - or who just don't have enough equity in their home to do so.One option could be an IVA, or Individual Voluntary Arrangement. This is, as it says, an arrangement - with the individual's unsecured lenders. You can find more IVA information here.
Basically, if they can reach an agreement, the borrower will commit to repaying what they can of their debt over a (normally) five-year period, on the grounds that they can't afford to keep on repaying their debts as they originally agreed.
The lenders will commit to writing off whatever unsecured debt is left over at the end of it - as long as the borrower has lived up to their side of the deal.
The borrower's payments would be set at a level they can reasonably expect to stick to, given that they have other costs to meet each month as well, from their mortgage or rent payment to their utility bills, food bills, etc.
But it's no easy way out of debt. First of, it takes some real commitment from the borrower. Second, it is a form of insolvency and will appear on their credit record for six years. And finally, it'll probably require them to free up some equity (if they're actually able to do so) so they can pay more into the IVA.
