Remortgage with Credit Card Debt
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Remortgage with Credit Card Debt
Sam Hubbard explains how remortgaging works if you have credit card debt.
What is a debt consolidation remortgage? Can I remortgage with credit card debt?
A debt consolidation remortgage allows a borrower to increase their mortgage to potentially pay off unsecured debts – like a credit card. In effect, the new mortgage pays off both the existing home loan and any credit card balance. You’re rolling everything into one monthly payment, often at a lower interest rate than a credit card.
Most lenders will consider applications from borrowers with credit card debt, provided they meet affordability and credit criteria.
How does credit card debt affect a remortgage? How will credit card debt affect my mortgage application?
Credit card debt will impact applications in two ways – your credit score and your debt-to-income ratio. High balances or missed payments can lower your credit score and reduce how much you can borrow.
Lenders will look at your total monthly outgoings, including credit card repayments, when they assess affordability to see if it’s feasible to loan you the amount required. Keeping balances as low as possible and managing payments will help get things through.
What are the eligibility criteria for a remortgage for debt consolidation?
Eligibility depends on the lender, but broadly the main question is whether your income is sufficient to make the loan affordable. Can you afford the new mortgage payments? Your employment and income status are also a factor, including whether you are employed or self-employed.
Lenders then look at the current property value and what equity is left – these are crucial considerations. Next they will look at the individual’s credit history. How good is the credit score, and what percentage of your credit card limit are you using?
Many lenders will limit the amount of equity you can take out of a property on debt consolidation. The maximum loan size may be 85% or possibly 90% direct with a first charge lender.
My remortgage application was declined – what can I do?
First and foremost, speak to a broker to find out what the problem is. There are some common reasons why applications can be declined and often they can be overcome. It’s just a case of knowing what the issue is and looking for solutions.
We would get hold of the credit file and where there are challenge points or incorrect information. Perhaps there’s a county court judgment (CCJ) or late payment listed that you can challenge directly back with the lender.
If you’ve got lots of debt outstanding, and you’ve got some savings or capital to reduce those, it may put you in a better position to be accepted.
We would also consider alternative lenders. Seeking advice is probably the best route. Rather than searching for that needle in a haystack, let’s look at and evaluate all the information and find out where the problem is.
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How much can I remortgage for?
Most lenders will consolidate debt up to 85% or possibly 90% Loan to Value. But the exact amount depends on credit profile and affordability.
That’s the case with first charge mortgage lenders, where you just have a mortgage with one lender. It may be possible to go above that 90% level with other forms of borrowing, such as a second charge loan, where you may get to 95% or sometimes even 100%.
What are the key things to know when remortgaging with credit card debt?
The main advantage for most households is that consolidating will generally lower your monthly costs, because you’re spreading the debt over a longer period of time. Plus, credit card interest rates can be 20% to 30%, while a mortgage rate may well be down at 3% to 6%. That makes a big difference.
The main disadvantage is that you will increase the total interest you pay over the life of the mortgage. You’re going to be paying interest on that money for longer. Also, you will be taking unsecured debt and securing it against your home.
You should also consider possible fees and early repayment charges. Lenders may have an arrangement fee for setting up the product you want. If you’re on a fixed-rate deal that hasn’t ended yet, there may be early repayment charges involved.
Can you consolidate credit card debt twice?
Yes, you can, but lenders will start to scrutinise repeat consolidations. If you’ve consolidated before and built up more debt, lenders want to see evidence that you can manage your finances.
Too many attempts at trying to consolidate will be a red flag to lenders. You can do it, but there will be a smaller number of lenders to approach.
Is it better to have a personal loan or credit card debt when remortgaging?
Both are considered unsecured debt, and lenders will look at the total and how you manage it. Personal loans often have fixed terms and lower rates than credit cards, and so they may be viewed more favourably. But the key is responsible repayment behaviour.
There could be advantages to having a personal loan, but in reality a lender is going to look at it in exactly the same way. With both types of credit, you’re making a monthly payment so they want to see how that affects your overall borrowing ability.
How can a mortgage broker help here?
It’s all about getting professional help. With consolidation of debt, advice can be really crucial. Getting support is always invaluable, in my opinion.
Key Takeaways:
- A debt consolidation remortgage allows you to combine your existing mortgage and unsecured debts (like credit cards) into one monthly payment, often at a lower overall interest rate than credit cards.
- Lenders will assess your application based on affordability and credit criteria. High credit card balances, missed payments, and a high debt-to-income ratio can negatively affect your credit score and limit the amount you can borrow.
- The maximum loan size for debt consolidation with a first charge lender is typically limited to 85% or possibly 90% Loan to Value (LTV). Other forms of borrowing, like a second charge loan, may allow for a higher LTV.
- The main advantage is a lower monthly cost, but the key disadvantages are increasing the total interest paid over the life of the mortgage and securing unsecured debt against your home.
- If your application is declined or for complex cases, seeking advice from a mortgage broker is recommended. They can identify problems, challenge incorrect information on your credit file, and find alternative lenders.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.