Remortgage for Debt Consolidation

Many individuals may be in the unfortunate position of being in debt. One strategy for clearing this debt is through remortgaging. With a debt consolidation remortgage, you can release equity in your home, which can then be used to pay off your debts.

However, it’s essential to ensure that you can manage the new monthly mortgage payments, but this can be an effective way to help you regain your financial footing.

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Author: Carl Shave - CEO and co-founder
Last updated: 21 Jun 2024

Can I remortgage to clear my debt?

If you are a homeowner with a mortgage and have built up enough equity in your property, it’s likely that you’ll be able to do so. For example if you have £100,000 left to pay on a £300,000 mortgage, you would have built up £200,000 in equity.

So, how does mortgage debt consolidation work?

The equity built in your home will be released in order for you to consolidate the debt. This will allow you to merge multiple payments into a single monthly mortgage payment, rather than paying multiple debtors. This could potentially be done with your existing lender, or you may need to find a new specialist one.

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Useful Information

Should I remortgage for debt consolidation?

Understanding both the advantages and disadvantages when looking to remortgage to consolidate debt is crucial. We have compiled some of the key factors to keep in mind.

Advantages of debt consolidation Disadvantages of debt consolidation
  • Mortgage rates typically are lower than other loan types, such as credit cards or standard loans, potentially saving you money over time.
  • Consolidating all your payments into one can simplify your finances.
  • Debt consolidation can reduce monthly payments, but it’s essential to evaluate the difference between lower monthly payments and the total cost of borrowing, as you may pay more interest over time.
  • Lower payments can free up more capital for effective budgeting.
  • Failing to keep up with your payments could put your home at risk.
  • The amount of overall equity in your home will decrease, when borrowing against it.
  • You may pay more interest in the long run, if your term is longer.
  • Early repayment charges may be imposed by lenders if you pay off your loan before the set repayment term ends.

What type of debt can you consolidate into a mortgage?

Some of the more common types of debt that can be consolidated when remortgaging are:

  • Credit card debt
  • Personal loans
  • Car loans
  • Student loans
  • Store credit
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Can you remortgage for debt consolidation with bad credit?

It is definitely possible to do so if you have bad credit, as there are specialist lenders available. However, your chances of getting approved will be much slimmer.

There are a few reasons why this can be hard for people, such as:

  • You have a low credit score, meaning borrowing is more complicated.
  • You do not make enough money to keep up with the payments

Ultimately, whether consolidating debt is a good idea or not depends on your personal circumstances. If you’ve thoroughly assessed all your options and believe it’s the right choice, then proceed. On the other hand, if it doesn’t seem like the right choice, then don’t proceed.

Our experts at Just Mortgage Brokers can assist you in making the best decision. Contact us today.

When you first apply for more credit, your credit score is likely to drop. However, over time, if you can keep up with payments and you don’t apply for more credit, it should improve.

Secured loans for debt consolidation

A secured loan involves borrowing money that is secured against your house, also known as a ‘second charge’ against your property. Like any loan, it’s crucial to ensure you keep up with payments; otherwise, your credit score will be negatively affected.

Lenders’ assessments for secured loans can be more favourable than those for mortgages. Therefore, if you have bad credit history, you may have a better chance of getting a secure loan.

Additionally, if you’re facing an early repayment charge on your current mortgage, this option may also be suitable for you. But in some cases, it may be worth paying the early repayment charge, as it could work out cheaper in the long run.

Remortgaging for debt consolidation

An alternative to a secured loan is to take out a remortgage on your current home. If you’ve built enough equity in your property, you can use the capital to pay off your other existing debts.

The amount you can borrow will depend on the value of your home and the remaining balance on your mortgage. Usually, the maximum most lenders will allow you to borrow (at the time of writing) is 90% of the property’s value.

For example, if your property is valued at £250,000 and you have £100,000 of your mortgage left to pay. Then, there is £150,000 of equity in your home. However, the most you will be able to borrow under a remortgage would be 90% of the property’s value.

Therefore, the largest mortgage you could have would be £225,000. And the lump sum you might see from remortgaging to pay off your debts would be £125,000.

Also, note any mortgage offer will be subject to the lender’s assessment criteria. They may only be prepared to offer a lower loan-to-value ratio for the loan.

Interest rates for remortgages are usually a lot better than those for short-term loans. We have put together an illustration of how interest rates and payments can compare:

Type Balance Term Rate Monthly Payment
Mortgage £130,000 24 years 5% £716
Loan £10,000 5 years 12% £222
Loan £4,000 3 years 15% £138
Credit Card £8,000 NA Min 3% Payment £240
Total £152,000     £1,316

Type Balance Term Rate Monthly Payment
Mortgage £152,000 24 years 5% £847
Total £152,000     Saving of £469 PER MONTH

Debt consolidation mortgage advice

As with any financial product, it’s always worth seeking expert advice first. At Just Mortgage Brokers, we work with over 90 lenders offering Right to Buy mortgages. We can advise on the best options available, and our team will guide you through the application process.

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