Secured loan

[AndWhat]

We have a large amount of equity in our house but due to covid issues we had a small drop in income and a lot of bills needed paying which meant using credit cards.
We’re struggling to keep all the balls juggling and would like to clear the debts securing the money against the equity in the house.
We don’t have a great credit rating due to being maxed out on multiple credit cards and a large loan which we’re paying off.
If we were able to lump them all in together over a longer time the monthly repayments would be less.
Is this possible? Or do I have to look at remortgaging to release the funds?

'Equity' loans/loans secured against your house are a thing, yes, and possible even if you have a mortgage but can be expensive and difficult esp if you have a poor credit history - this is because they are viewed as 'high risk' for the lender, if for whatever reason you failed to repay it the lender could only get their money back by forcing a sale of your house, obviously your mortgage provider would get '1st dibs' on the profit plus costs etc would be taken off, so the lender risks not getting their money back, so to offset this they charge a high interest rate meaning you end up paying back much more than the original debt.

So whether it's worth it will depend on how much equity you have, your current mortgage amount and interest rate, the amount and interest you are paying on current debt and the interest rate on the loan vs the interest rate you'd be paying if you remortgaged - also whether the loan allows for early repayment. It's pretty complex calculation as you need to work out compound interest across the lifetime of all the loans/credit and also to do a budgetary calculation of how much you can reasonably afford each month as a repayment - in basic terms you will usually save money in the long term by repaying/overpaying debt (including a mortgage) asap rather than consolidating and repaying over a longer term, but obviously you need to eat and live in the meantime and if you are able to get a reasonable interest rate on either a remortgage or a secured loan then it may be worth it, particularly if you can throw any extra money/savings at reducing the term.

It might be worth speaking to a debt advisor before making any decision, StepChange are good or Christians Against Poverty (the latter are a religious organisation but don't proselytise in any way). If you can negotiate with your existing creditors for a payment plan that might (might!) be better than consolidating into a bigger loan?

If we were able to lump them all in together over a longer time the monthly repayments would be less

But the total you have to pay back could be a lot more. You should only go down this route if you can get a loan on a good rate, which might not be possible if your credit rating is poor and you are certain you can afford the loan and you do not borrow any more money until the loan is paid off.

Because secured loans should be regarded very much as 'last chance and one chance only' solutions and if you end up borrowing more, you'll be in more debt and then you're at a real risk of losing your house. I really wouldn't go down this route without a thorough examination of your budget, to make sure you can afford all your payments and live without credit. Have a look at Moneysavingxpert or contact Stepchange etc for advice before trying this.

www.moneysavingexpert.com/news/2020/03/uk-coronavirus-help-and-your-rights/

Have you had a Covid mortgage holiday?

If your drop in income has been because of Covid and you are eligible, you might be better off getting a mortgage holiday and using the money you save on mortgage payments to clear/reduce the debts.

It won't affect your credit rating and the interest rate on the mortgage will be a lot lower than on your cards/loan.

Secured loans are a last resort imo, as if you can't pay, you lose your house and they cost more in interest than increasing the amount of your mortgage. Remortgaging and releasing equity to reduce/clear the debts that way would be better than getting a secured loan imo.