Consolidation Home Loan | Reduce Your Monthly Outgoings
What is a consolidation home loan?
Financial Services Authority (FSA) rules state that all consolidation home loan providers must carry the following warning: "Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it." This is because while a consolidation home loan is not exactly a mortgage, it is the 'or any other loan secured on it.'
A consolidation home loan therefore constitutes secured lending, not unsecured lending, as is the case with credit and store cards, over drafts and personal loans. This means that if you default on repayments, your home is at risk and could be repossessed. In contrast, if you default on payments on an unsecured loan, your credit rating might take a battering but your home will be left untouched.
Why would I apply for a consolidation home loan then?
Although a consolidation home loan comes with its pitfalls, there are a number of circumstances why it can be the best, or even only, solution. For example, unsecured lending is capped at £25,000 which may not be enough, while remortgaging your existing primary home loan could be too expensive as it is subject to tie-ins and therefore thousands of pounds in early repayment charges.
Similarly it can also make sense in some circumstances to take a consolidation home over a further advance on your existing mortgage. For example your credit rating could have been damaged since you took your current mortgage, and the lender is unwilling to lend further even though you have been a reliable borrower to date.
It could also be that you are entering a life-changing time like a death or divorce and need the money urgently. In this case it's usually quicker to get your hands on a consolidation home loan than releasing the equity through a standard mortgage.
Is the consolidation home loan market regulated?
Currently, this depends. Any secured borrowing below £25,000 is regulated by the Consumer Credit Act (CCA) but secured loans, including a consolidation home loan, above this amount are without regulation, meaning you will have limited recourse if you are not satisfied or feel you have been mis-sold.
What else should I know before I apply for a consolidation home loan?
It sounds obvious but plenty of people apply for and are granted a consolidation home loan without really understanding what they are getting into. The facts are that the interest payable on a consolidation home loan is often more expensive than on a standard residential mortgage, and it may come similar tie-ins and penalties that are similar or worse.
But as rates, eligibility and terms and conditions vary among consolidation home loan providers it's especially important to use a broker like the Secured Loan Centre that has relationships and experience with a range of companies which will ensure you end up with the best consolidation home loan available.
