How to turn a mountain of debts into one smaller monthly repayment

Struggling to manage and repay multiple debts? Did you know that if you own your own home, you could quickly reduce the interest rate on your debts as well as your monthly repayments using a second mortgage?
Repaying multiple debts with one manageable payment is widely referred to as “debt consolidation”. Below, we’ve included a short animation that will help underline just what we mean by debt consolidation, as well as highlighting its benefits.

What’s a second mortgage?

Second mortgages are loans that use your home as security. They are called second mortgages as the lender takes secondary priority behind your main (first charge) mortgage, without affecting it. Many people use second mortgages to access the equity they have in their home instead of re-mortgaging as comparatively this can be less expensive and can be less restrictive on qualification for the loan and the purpose of the loan. They’re used for a variety of purposes, including debt consolidation. Typically they can be arranged in less time, avoid expensive upfront fees and mean that the existing mortgage remains in place - avoiding, for example, any penalties for early repayment. Essentially, if you take out a second mortgage, then you have two [separate] mortgages on your home, two loans owed to two different lenders.

How can a second mortgage help to better manage your debt?

Today’s access to, and reliance on credit can mean that debts have a nasty habit of stacking up. Keeping on top of them can become a little overwhelming. As we’ve highlighted in the video, organising these debts into one manageable payment can make the world of difference when it comes to feeling on top of things and reducing your day-to-day stresses. One of the many benefits of using a second mortgage for this purpose is that you don’t get penalised for overpaying. This means that on good months you can pay more off your debt, helping you to clear it sooner and achieve your debt free money goals.

How can a second mortgage reduce the interest you pay on your debt?

Because a second charge lender will use your home as security for your loan, the risk (to them) of not being paid back is significantly reduced. This means that the interest rates available to you are often very competitive when compared to unsecured facilities such as personal loans, credit cards and so on.

Consolidating all of these unsecured debts using a second mortgage means that you can often enjoy a much lower rate of interest!

How can a second mortgage reduce your monthly repayments?

As well as often enjoying lower interest rates, second mortgages can be repaid over a much longer term. These two features mean that your repayments can be significantly reduced - by hundreds and sometimes even thousands of pounds!
For savvy borrowers, this can simply provide a more flexible way of managing cash flow, using their increased level of disposable income to build a cushion to help when those unexpected bills fall through the letter box - and helping to avoid further, expensive, borrowing. And, as most second mortgages allow the borrower to make overpayments, they can significantly speed up their journey to becoming debt free.

How do I get a second mortgage?

Well, that’s where Leopoldine Lening Diensten come in. We have a full market panel of specialist second mortgage lenders and can help you get the best rate available based on your individual circumstances. We have experts on hand who are dedicated to making things quick and simple. You can contact us on +32 460 21 8991.

Understanding the key differences

The first thing to consider when looking at leasing or owning real estate is the key differences between the two. There the obvious differences, such as control of the property, but there are other differences that have an immediate financial impact. For example, when leasing a property, the upfront financial impact may be less as there is no major lump sum due for a down payment, however, the long-term costs are often higher. Owning the property may have additional maintenance costs that a leased property will traditionally have covered under their lease agreement.

The other aspect to consider is how the areas property values are increasing or decreasing. If the property is in an area with an increasing value purchasing the property is ideal, as its value is added to a company’s assets. If the property is an area where values are decreasing, or have stagnated, then leasing may be a better option. A decreasing or stagnated property value may also have an impact on the surrounding businesses. If multiple companies in the area have closed or relocated recently then a lease is preferable as it ensures continued mobility.

Loans and Financial health

All of this is, of course, predicated on whether a purchase is financially viable. Will a sudden loss of funds have a large impact on your company’s financial health? Will the long-term costs, like interest or repairs, be possible based on future financial outlook? There are loans that can help with the purchase of a property, however, some industries may not be as likely to receive loans from large banks. Brokers can assist in connecting businesses and loans, however concerns about location, costs, or business viability, may have an impact on how much a loan is worth or if it is given at all.

All of these things directly relate to the financial health of a business. As with any major decision a company must consider what the choice between owning and leasing will have on their bottom line and finances. The easiest way to understand that impact will be to conduct a cash-flow analysis. In order to do so you must know the purchase and financing terms, lease terms, the combined federal and state income tax rate for the company, the facility’s expected useful lifespan for the business, the estimated value at the end of its use, your cost of capital as well as any other costs that you would incur if you leased the facility but not if you purchased it, or vice-versa.

Once that information is available a decision can be made on the opportunity to purchase versus renting, and a better understanding can be established for other major financial decisions.

Conclusion

The decision to rent or purchase real estate for a new or established business is a difficult one. It requires an understanding of not only the finances but what special needs each business has. A better understanding of each of these issues ensures that the process of making this decision is simplified. A financial broker can help find loans and determine which options are right for you.