The reunification, grouping or refinancing of debts are different ways of denominating a financial product offered by a sector of financial entities that serves to balance our financial situation. Basically it consists of expanding our current mortgage loan or establishing a new mortgage, with the amount of which we can cancel our personal loans, available balance on credit cards and other types of debts .
At Good Finance we have analyzed the main issues that need to be known about debt reunification to avoid further problems. You never have to sign anything, even before a notary, without fully understanding what it is and the consequences it entails. Independent Good Finance experts are a good way to start getting informed if there are doubts about this or any other banking issue.
What is and what is not a reunification of debts?
We will start with what is not : a way to pay 50% less each month.
It may surprise many to say that it is not what all the companies that have dedicated to financial intermediation advertised:
Collect all your debts into one and pay up to 50% less each month
This slogan is misleading advertising , and the legislator has considered it, if it is not accompanied by additional information that clarifies that the reduction of the monthly payment is achieved by grouping all debts into a new mortgage, which implies a higher outstanding debt and may Than an extension of the term.
Debt refinancing consists of processing a mortgage loan (usually on a home owned by the debtor, but a family member’s home could be mortgaged) that covers the outstanding debt of the previous mortgage, the amounts to be canceled from the rest of the debts and the expenses of Reunification
Gathering our debts makes sense if with the operation we are going to balance our finances so that we can disappear in an orderly manner. For whatever reasons, we have over-indebted and reunited to pay the debts neatly .
But reunification must be accompanied by a rationalization of our consumption patterns. Simply put, adapt our standard of living to our income. Otherwise, a reunification of debt will be of no use, since we will soon have other debts and generate a snowball that grows and grows until nothing and no one can stop our fall.
Expenses of a mortgage reunification
An advice that will avoid many later problems: you directly process the reunification with a financial entity or do it with an independent financial intermediary, always demand the binding offer and the breakdown of expenses (which includes the provision of funds) a few days before The signature before a notary. Never sign anything without having these documents in your possession.
The main expenses to consider in a debt refinancing are:
- The appraisal of the house that we are going to mortgage.
- The cancellation expenses of the previous mortgage loan (the cancellation fee plus the notary and agency fees) and the cancellation fees of the personal loans and other debts are paid.
- The expenses of constitution of the new mortgage that reunites all the debts; they are the same expenses as in a normal mortgage, which must be taken into account that the opening commission often exceeds 1%.
- Fees of the financial intermediary: if it is not contracted directly and processed by a professional, who must be required to scrupulously comply with Law 2/2009. There is no legal limit , but above 5% I think they are unacceptable. This expense can and should be negotiated with the intermediary before delivering the documentation, and they must be given to us in writing.
With the bank or with an intermediary?
Some bank client advisory companies such as Ausbanc condemn the intermediary (misnamed the reunification company), but the truth is that even the law itself recognizes its usefulness:
“… They can be useful to consumers who decide to hire these services by enabling a more efficient search of the credits and loans available in the market, while these entities allow consumers to gain bargaining power against lenders, thus being able to access to better conditions in the loans they hire . ”
In my view, a client can go directly to the bank without problems when he has time, financial knowledge and ability to negotiate with the financial entities this type of operations. In another case, you should assess the usefulness of leaving all the procedures to an independent expert , always taking into account that he complies scrupulously with the aforementioned legislation and negotiate the fees whenever feasible.