Remortgage for Debt Consolidation

Remortgage for debt consolidation

This page was last updated in July 2022. 

Remortgage For Debt Consolidation in 2022

Remortgaging is a fantastic method to get your financial life in order. Remortgaging allows you to obtain a lower interest on your mortgage, resulting in savings every month. This extra money might be invested to pay off other debts, such as credit cards, faster.

If you are struggling with debt, consolidating your debts into one payment can make things much easier to manage. A lower interest rate might also save you money over time. Remortgage with debt consolidation is a smart way to get your finances back on track.

The main advantage you will see is a substantial decrease in interest rates. The second advantage is to simplify your payments into one single monthly repayment, so there’s no need to be concerned about numerous monthly payments throughout the month or owing a CCJ or IVA in the future.

Topics that you will find covered on this page

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What is a debt consolidation mortgage?

A debt consolidation mortgage is a mortgage which is used to pay off multiple debts or payday loans. By consolidating your current debts into one monthly payment, you can save money on interest and make it easier to manage your finances.

How does it work?

A debt consolidation remortgage works by using the equity in your home to pay off current debts. The interest on the new mortgage will be lower than the interest rates on your existing debts, so you’ll save money each month. The extra cash may be used to pay off lump sum obligations more quickly.

For example

Imagine you had £5,000 on one credit card with interest of 24.5%, a single loan of £10,000 at 11.5% APR and another loan of £7,500 at 16.95% APR. Your debts would add up to £22,500.

Over a ten year period, taking interest into account, you could pay up to a huge £45,923 – £23,423 of which is interest.

However, taking out a 10-year debt consolidation remortgage with an interest rate of 5% means you could pay back just £28,638.

How do I qualify?

To qualify, you will need to have equity in your home or property. The amount of equity required will vary depending on the mortgage lender, but typically you’ll need at least 20% equity.

You’ll also need a good credit score and a continuous source of income. Mortgage lenders will want to know that you can repay your debt consolidation mortgage on time and that you are financially capable of doing so.

What’s the difference between a debt consolidation remortgage and a second mortgage?

A second mortgage is a secondary loan which is added to your current loan. A re mortgage with debt consolidation is used to consolidate numerous debts and replace them with one monthly payment.

A second mortgage will have a higher interest rate than a debt consolidation loan. Because the lender’s risk is greater – if you default on the loan, they may lose their money – this is true for both debt management and second mortgages.

Second mortgages are often shorter in duration than debt consolidation mortgages. This means that you’ll pay more interest over the life of the loan.

What’s the difference between a debt consolidation remortgage and a home equity loan?

A home equity loan is a type of second mortgage. Like a debt consolidation mortgage, a home equity loan uses the equity in your home to pay off other debts.

The main difference between a mortgage consolidation and a home equity loan is the interest rate. A home equity loan generally has a higher rate than a debt consolidation remortgage. This is because the risk is higher for the lender – if you default on the loan, they could lose their investment.

debt consolidation remortgage

When would remortgaging to pay off debts be a good idea?

There are a few situations where remortgaging to pay off debts might be a good idea:

  • If you’re struggling make monthly repayments on your existing debts or existing mortgage
  • If you’re paying high interest rates on your current debts
  • If you want to make your finances more simple by consolidating your debts into one monthly payment
  • If you’re looking to save money on interest over time

"Remortgaging is a fantastic method to get your financial life in order. Remortgaging allows you to obtain a lower interest on your mortgage, resulting in savings every month. This extra money might be invested to pay off other debts, such as credit cards, faster."

Things to think about before remortgaging to consolidate debts

Before deciding to remortgage for debt consolidation, you ought to consider if it’s the most ideal solution for your circumstances.

For one, remortgaging will extend the term of your mortgage, which means you’ll be paying it off for longer. This could mean paying more interest in the long run. It’s important to compare the rate on your new mortgage with the interest rates on your existing debts to make sure you’re getting a good mortgage deal.

You should also think about whether you’re comfortable using your home as collateral for your debt. If you fail to make payments on your debt consolidation mortgage, you could lose your home.

If you’re thinking about remortgaging for debt consolidation, get expert advice from a financial professional.

debt consolidation' mortgage

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Questions about remortgaging for debt consolidation

Is a remortgage more cost-effective than repaying debts to separate creditors?

Remortgaging your debts might make managing your money more convenient and occasionally more economical, but numerous elements can influence the total cost.

Many mortgage contracts include exit fees, and the expense of this may outweigh any potential savings from combining all of your debts together with a re mortgage.

Who is able to remortgage?

A lender will evaluate your suitability for a remortgage in the same way it would any other mortgage. Your credit rating, work history, and existing mortgage obligations are all taken into consideration.

You may not be able to remortgage if you have a bad credit history or are self-employed. If your credit score is historically poor, you might not be able to re mortgage. Lenders will view you as a high-risk borrower and may refuse to offer you a loan.

How much can I borrow?

The maximum loan you may borrow is determined by the state of your home’s equity, current obligations, credit history, and whether you fulfil the lenders’ financial criteria. Your debt-to-income ratio might also be considered; however, each lender will allow you to borrow money up to the allowed amounts.

‍remortgage with debt consolidation

Some lenders will make a mortgage offer up to 90% of the loan to value ratio (LTV) for properties worth more than £500,000, whereas others might only provide a certain amount, such as £20,000.

Other lenders may be more focused on how your original debts were acquired in the past and make their decisions based on a case-by-case basis, rather than your debt-to-income ratio.

What debts can I consolidate?

You can usually consolidate most types of debt with a remortgage, including credit cards, store cards, personal loans, and outstanding balances on another mortgage. 

You will find you are not able to consolidate certain types of debt, such as student loans or business debts.

What is the difference between a secured loan and an unsecured loan?

A secured personal loan is a personal loan secured by collateral, such as a house or a car or hire purchase agreements. If you can’t make your monthly outgoings on a secured loan, the lender can seize the collateral. You can remortgage to consolidate secured loans.

As opposed to a secured loan, an unsecured loan is a debt that isn’t backed by collateral. If you can’t make your monthly repayments on an unsecured debt, the lender can’t seize any of your assets.

Can I remortgage to consolidate my unsecured debts?

While you can always consolidate a secured loan, you may be able to remortgage to combine your unsecured debts, depending on how much equity you have in your home and on your current mortgage. To qualify for a remortgage, you’ll generally need at least 20% equity.

If you don’t have enough equity, you may still be able to consolidate your unsecured debts by taking out a second mortgage or what is called a home equity line of credit (HELOC).

mortgage consolidation

Do I have to remortgage with my current lender if I want to take out a debt consolidation mortgage?

You don’t have to remortgage with your existing lender if you wish to combine debt. You can shop for a fresh mortgage deal with other mortgage brokers if you like.

When shopping for a remortgage deal, make sure to compare rates, fees, and terms. It may be helpful to work with a mortgage broker who can help you find the best deal.

Can I pay off a remortgage early?

Yes, you can usually pay off a remortgage early without incurring any penalties.

There may be penalties to pay if you decide to switch deals before your current deal ends. You may need to pay a significant early repayment charge. It may still be worth your while switching but make sure you’re fully informed by checking your mortgage contract to see if there are any prepayment penalties.

Does my mortgage allow me to remortgage now?

If you’re in a five-year fixed-term mortgage and only two years into the term, chances are you’ll have to pay early repayment fees. If you remortgage before your loan term is up, be sure to double-check with your lender for early repayment charges.

If your initial mortgage term has expired, the chances are your current mortgage rates will be higher than average.

Alternatives to remortgaging

There are other ways to consolidate your outstanding debts if you don’t want to or can’t take out another mortgage.

You could get a personal loan, use a balance transfer credit card, or participate in a debt management program. Each of these choices has advantages and disadvantages, so make sure you understand them before making your decision.

‍debt consolidation mortgages

Personal loans

A type of unsecured loan that you may use for any reason. Personal loans are often offered with fixed rates and terms of three to five years.

Balance transfer credit cards

A balance transfer credit card is a credit card that allows you to move your existing debt onto a new card with zero per cent interest for a limited time. The rate on the outstanding balance will revert to normal after the promotional period has ended.

Debt management program

A debt management program is a service that can be offered by a nonprofit credit counselling organisation, such as Step Change

Your creditors are negotiated with to provide interest savings and monthly payments, according to your personal circumstances. Each month, you make one payment to the agency, which then distributes the money to your lenders.

There are a few disadvantages to signing up for a debt management program, including the fact that it may take years to pay off your outstanding debts and that your credit score may be negatively impacted.

So should I remortgage to consolidate my debt?

Remortgaging to consolidate debt has a number of advantages but also several risks.

Remortgaging will extend the term of your current mortgage, which means you’ll be making mortgage repayments for a longer period of time (and paying interest for longer). By consolidating your debts into a single monthly payment, you might end up paying more interest over time. This is because you’ll be extending the term of your loan and potentially increasing the interest.

Remortgage using debt consolidation

You also need to consider potential fees associated with remortgaging, such as exit fees, valuation fees, and arrangement fees. These costs can eventually add up and take away from any potential savings from consolidating your debts.

Another potential downside is your home could be at risk of repossession if you fail to keep up with payments on a mortgage debt secured on it.

However, remortgaging could help you get a lower interest rate on your debts which could save you money in the long run. Consolidating your debts into one monthly repayment plan might make it easier for you to stay on top of your finances.

Where to find help if you want to remortgage

If you’re struggling with debt, there are a number of places you can turn to for help. You can contact a credit counselling agency, work with a debt settlement company, or even speak to a bankruptcy attorney.

If you decide you want to remortgage to consolidate debt, you can discuss it with your current lender or shop around for a new mortgage provider. 

Make sure you speak to qualified advisers to get mortgage advice from a qualified mortgage adviser or from the financial ombudsman service if you decide you want to consolidate your debts onto your current mortgage deal.

Next Steps

Borrowing money can be a complicated subject. You’ll need to figure out how much you want to borrow and then fill out an online application to get mortgage approval.

In order to qualify for debt consolidation remortgages, a lender will evaluate the following:

  • Your credit report and what debts you have
  • The property value and loan to value
  • How much of your home you own outright
  • How much you want to borrow compared to your income 

Before agreeing to lend, most lenders will want you to seek mortgage advice and sign a solicitor-drafted agreement. 

This is an agreement where you agree to repay your debts in full on completion of the advance, though if you already have enough income from which to deduct your commitments, this might not be necessary.

Over 55 and a home owner? Try our equity release calculator and see how much money you can get from your house, tax-free, in 30 seconds

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Learn More About Mortgages In The UK

How do mortgages work in the UK?

Buying a home or land is expensive. A mortgage is a financial product that helps people purchase their own home or land.This is especially true for a first time buyer, as it might be the only route onto the property ladder.

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ou can still be approved for a mortgage to buy a property if you have a poor credit score. However, someone with a poor credit score will probably have a higher interest rate than someone whose credit score is good. Buyers with a low credit score may also need to pay a bigger deposit.

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After sending off the final application waiting for the decision can be frustrating. Many prospective homeowners ask ‘how long does it take?’ but the truth is the mortgage approval process is always different for each customer.

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The entire conveyancing process will normally take anywhere between 8-12 weeks, however you should be prepared for this to take much longer depending on your circumstances and wider factors. This articles explores what the timescale involves.

Mortgages if You are bankrupt

There is no hard and fast rule when it comes to what lenders will accept your mortgage application if you want to get a mortgage after bankruptcy. They will lend to discharged bankrupts and consider each case individually. 

what stops you getting a mortgage?

Everyone wants to get the best deal when it comes to buying a home and getting a mortgage when they buy a home. However, being too ambitious can lead to your application being rejected. 

how much do mortgage advisors charge?

Fees for mortgage brokers can be off-putting. A mortgage is an expensive financial product, and often buyers want to save as much money as possible. This might limit their options when it comes to using a mortgage broker.  However, not everyone advisor charges a fee.

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When you have an IVA, mortgage acceptance is still possible. However, involuntary agreement mortgage lenders can be hard to find. Typically, a high street company will be more less keen to give you a mortgage. 

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

Frequently Asked Questions

What is a debt consolidation mortgage?

A debt consolidation mortgage is a mortgage which is used to pay off multiple debts or payday loans. By consolidating your current debts into one monthly payment, you can save money on interest and make it easier to manage your finances.

How does it work?

A debt consolidation remortgage works by using the equity in your home to pay off current debts. The interest on the new mortgage will be lower than the interest rates on your existing debts, so you’ll save money each month. The extra cash may be used to pay off lump sum obligations more quickly.

Is a remortgage more cost-effective than repaying debts to separate creditors?

Remortgaging your debts might make managing your money more convenient and occasionally more economical, but numerous elements can influence the total cost.

Many mortgage contracts include exit fees, and the expense of this may outweigh any potential savings from combining all of your debts together with a re mortgage.

Does my mortgage allow me to remortgage now?

If you’re in a five-year fixed-term mortgage and only two years into the term, chances are you’ll have to pay early repayment fees. If you remortgage before your loan term is up, be sure to double-check with your lender for early repayment charges.

If your initial mortgage term has expired, the chances are your current mortgage rates will be higher than average.

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