If you want to reduce your expenses, consider increasing your mortgage to pay off your other debts. Check if you meet the conditions to do so, as the benefits for your budget are clear.
Advantages of Increasing Your Mortgage Loan to Pay Off Other Debts
Lower Interest Rate
This is undoubtedly an advantage. The interest rate on your financial loans is higher than the interest rate on your mortgage.
If you were thinking about taking out a personal loan to consolidate all your other debts, don’t do it. Check the maximum credit rate set by the Bank of Portugal for new consumer loans and compare it with your mortgage interest rate. It is certainly much higher.
Lower Monthly Payment Compared to Your Current Installments
By increasing your mortgage loan, your monthly payment will rise (since the total amount owed will be higher), but it will certainly be lower than the sum of your current mortgage installment and your personal loan installments.
Lower Effort Rate
By reducing the financial burden on your monthly income, you gain financial flexibility and lower your effort rate. This is the first step toward achieving financial well-being.
To Increase Your Mortgage Loan, Your Debt Must Be Below Your LTV
To be able to increase your mortgage loan, certain conditions must be met. You need to consider three key values: your current mortgage debt, your total financial debts, and the valuation of your home.
Check the Amount of Your Current Debt
Your financial plan, included in the European Standardized Information Sheet (FINE) provided by the bank when you took out your mortgage, includes the outstanding principal balance on the date of each payment. Review this document to find out how much you still owe. Alternatively, check your monthly bank statement or ask your bank directly.
Calculate the Total Amount of Your Current Financial Debts
Add up the outstanding balances of all your financial loans, including credit card debt if you don’t pay off the full balance each month. If you don’t know the exact amounts, ask the financial institutions that issued the loans. Also, check whether you will incur penalties for early repayment, such as prepayment fees. If so, include these fees in your total debt calculation.
Determine the Appraised Value of Your Property
This is a crucial factor, as your mortgage should not exceed the loan-to-value (LTV) ratio set by the Bank of Portugal.
If you have had your mortgage for a long time, your outstanding debt has likely decreased, and your property’s valuation may be outdated due to rising real estate prices in recent years. Consider requesting a new appraisal from your bank, but keep in mind that you will have to cover the cost.
Do the Math
With these values in hand, the next step is to calculate your financial position.
Determine the maximum mortgage loan amount you could have based on the LTV set by your financial institution and compare it to your current outstanding debt.
If the difference is equal to or greater than your total personal debts, consider talking to your bank about using this margin to pay off your financial loans. This will give your household budget some breathing room.
Get in touch with Lead Kash
If you want to find out whether you can pay off your financial debts by increasing your mortgage loan, talk to us. Lead Kash handles the entire process for you and, in the end, presents you with the best solution to achieve your goal. Best of all, this service is completely free for you. Contact us and let us simplify your life.
