It is true that today the reunification of debt is no longer as common as it was a decade ago. It is also true that the use of this type of tools is highly rationalized, even so it is convenient to know in depth what it implies and how a debt reunification works.
At a time when mortgages are picking up slightly in 2017, operations around mortgage loans are still much less frequent and more complex than 15 years ago. At the time of greater presence of the mortgage contracting, the products around the mortgage loans were many, very abundant in terms of supply, and highly contracted. The reunification of debt was one of these products.
For personal finances, debt reunification can be a useful tool. However, this option has been treated almost as another standard financing model, which has led to a situation in which excessive credits have been lengthened by making the initial costs very important.
A reunification of debts is a type of financial operations in which the different financial credits are unified into one, in this case around pre-existing mortgage loans. This what it does is to unify in the loan of greater amount, generally the mortgage, the rest of credit debt. In this way, with the mortgage as an initial loan, amortization periods can be extended, and even capital financed to settle the remaining debts.
This can also occur when two mortgages are reunited in a sol to, although it is more infrequent and has to do with times when one of the two mortgages is close to its amortization.
What you get with debt reunification is usually a monthly cost less than the sum of all financial debts. That is, the sum of everything we pay in loans will be reduced by unifying them into one. There is no scale by which we can say what the actual reduction percentage is, it is usually a sensible reduction, that is, it can be noticed in your pocket and obviously come very well immediately to our accounts.
Technically, the benefits of this product are based on introducing financial debt, for example in a personal loan, around 15% interest, within a financial debt such as the mortgage with much lower interest rates. Seen in this way it may seem like a very interesting operation, but obviously it has chiaroscuro to take into account.
Why we must be careful with the reunification of debt in the first place we must understand that the advantage of the reduction of the monthly quota grouping credits does not arise by magic. This advantage arises when increasing the repayment terms of the mortgage loan, that is, we transfer a debt from a personal loan for example to five years and convert it into a debt for the rest of the mortgage’s duration, for example 20 years. If we take this into account, we will soon recognize that in the long term this operation is not at all advantageous. In fact, the partial amortization of each of the financing operations included in the reunification will multiply in cost over the years, that is, we will pay much more than we would have paid assuming the repayment terms of the Personal loans branched on the mortgage.
Even so, there may be someone who says that this type of operation, this indebtedness for life, can be interesting if they reduce monthly payments. This is very questionable, firstly because our capacity for new financing needs is going to be drastically reduced. That is to say, it will be very complex in the long term to obtain another type of financing when we wish, for example to finance the purchase of a vehicle or even a second home.
But in addition, we must bear in mind that this is a really expensive operation that involves very high costs. These are costs of processing, formalization, but in addition, in many cases the credits that we are going to reunify may have prepaid cancellation expenses. To this must be added that the modification in the mortgage will bring notary expenses, records and taxes, while the opening of a new mortgage where to make the operation of reunification also brings more expenses.
In order to deal with all this, we are generally asked to increase the amount of the final loan, that is, we will not only finance what we owe, but we will also need to increase financing in order to pay what we owe. Obviously this what it does is to increase the principality of debt over a very long period of time, that is, more interest.
If you have ever consulted in the last five years the possibility of reunifying a mortgage to your financial institution you will probably have verified how it is not an operation that is especially interesting to banks. It is true that the banks themselves did not propose so long and, somehow, closed their eyes to real barbarities such as the incorporation of mortgage loans for the purchase of vehicles, valuables and so on. All this is part of a truly unfortunate recent history in relation to the use of mortgage loans, but, it is part of the past.
To the extent possible, the financial institution if it is the one that owns the loans that we owe will try to negotiate them separately, or even, in any case, will try to reunify personal loans separately to the mortgage loans. In some cases it is possible that this type of solution is offered from the bank itself, but it is not the most frequent.
Another option is to go to financial intermediaries or companies specialized in this type of financial tools. In this case we have to know that in addition to all the above the commissions that are usually handled can be between 3% and 5%. The great advantage of going to intermediaries or specialized companies is that their offer is usually quite polished and is generally more competitive than the financial entities offer per system.
Another important thing, which we do not always keep in mind when we make decisions such as reunifying loans in a mortgage, is that all our financial debts will become integrated with the mortgage loan, and therefore, the guarantee of all our financial debts will become housing. Obviously this can become so even from a personal loan, but in this case we are directly assuming the payment of a mortgage that, in case of default, will be executed immediately following the normal procedures of the bank.
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Really the reunification of debt would have to be a last tool in case of having tried all type of operations and negotiated solutions with the financial creditors.
The best way to approach a debt reunification in a mortgage is the conviction that the reduction of the monthly costs of the financial debt will allow us to rebuild our economy so that in a short period of time we can make partial amortizations of the whole of the mortgage. Even this is not a great solution since amortizations will probably bring about costs in the form of a Commission for early cancellation, but even then it is usually cheaper than letting the loan live over time.
In short, the monthly reduction of the fees involved in the reunification of debts, brings with it an increase in the total of money that we are going to pay, interest, and costs, binding us for many years, debts that were conceived in the short term like personal loans.
So keep in mind always these 4 factors that we mentioned before launching to reunify your debts. Remember that you will pay less monthly but for much longer. Your debt will increase and it is not evident that it is simpler to approach it. We hope this small warning will help you and that you keep it in mind at the time you are in such situation and consider unifying your debt.