Debt Consolidation Remortgage

What is a debt consolidation remortgage?

A debt consolidation remortgage will potentially allow an individual to combine multiple debts, such as loans, hire purchase agreements and credit card payments into a single mortgage payment.

It’s basically wrapping debt into the mortgage, to simplify your finances and reduce monthly costs.

A remortgage is often one of the most cost-effective ways of consolidating debt. However, there are other routes. It’s not just remortgages. There are things like second-charge mortgages that might work in some circumstances, especially if the current mortgage lender has restrictions, or there are heavy early repayment charges.

The process involves agreeing a new mortgage that combines the existing mortgage and other debts.

Do I have to remortgage with my current lender if I want to consolidate debt?

You don’t have to stay with the current lender to consolidate debt, but it might be a good option if it fits your current lender’s criteria. If it doesn’t, there are other possibilities.

For example, if your current lender has early repayment charges, you might want to explore a further advance with them. Or, you may want to consider a second charge mortgage, where you retain your existing mortgage and borrow money on a secured mortgage with another lender.

If neither option works, you could look at remortgaging with a new lender. Because there are many different options, especially when consolidating, working with a broker helps – because we can evaluate all the different routes.

We can look at a further advance, a second charge work or a full remortgage. We can also evaluate the overall costs of each route so that you can make an informed decision about what’s best.

What type of debt can I consolidate with a remortgage?

You can usually consolidate most unsecured debts into a remortgage. Things like credit cards are often consolidated, or store cards, personal loans, car loans, overdrafts, hire purchase agreements, and even student loans on occasion.

However, it’s important to know that there are some debts lenders don’t like, including gambling debts and unpaid tax bills. These may not be acceptable.

If you’re looking at debt consolidation, speak with a professional broker who deals with it, because we’re here to find solutions for you.

What should you consider when borrowing on your mortgage to consolidate your debt?

Consolidating debt through a remortgage has its advantages and disadvantages. The advantages include lower interest rates. Mortgage interest rates are very often lower than those on credit cards or personal loans.

Secondly, you’ll have cheaper monthly payments. This is where a lot of people start out with debt consolidation – maybe things have built up over time and monthly household expenditure becomes unmanageable. People then look at consolidating to make things cheaper.

Consolidating may result in a single, more affordable payment instead of multiple payments to various lenders.

It can improve credit score. Paying off existing debts, managing one payment responsibly and reducing your credit card usage will often improve your score. This type of mortgage is almost a financial reset.

However, there are disadvantages to consider. You may end up borrowing more overall and repaying money back over a longer period of time. It could mean you’re paying interest on that money for longer. So although monthly costs are lower, you may well pay more interest in total.

Remortgaging often will have additional costs such as arrangement fees, legal fees or valuation fees. I’ve mentioned credit score improving, but initially when you borrow money or apply for new finance, your credit score can dip for a short period of time – although it should build back over time.

You’re also extending the repayment term. Your personal loan might only have two or three years left on it. If you add that balance to your mortgage, you may be paying that over 10, 15 or 20 years.

Will I pay a higher interest rate if my remortgage is for debt consolidation?

This depends on the lender’s criteria and the type of remortgage.

By consolidating, you may be paying back debts and interest over longer. Lenders don’t generally increase the interest rate because you’re consolidating debts. However, they may restrict the loan amount or the Loan to Value they’re willing to offer.

We’ve mentioned in previous podcasts the potential to borrow up to 95% of the property value, but with a debt consolidation loan, you cannot borrow up to that level. Lenders may restrict you to 75% to 85%, depending on their appetite.

Keep in mind, too, that transferring unsecured debt to a mortgage means paying interest over longer, which means you’ll be paying more in total.