Remortgage for Debt Consolidation 

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What is remortgage for debt consolidation?

Debt consolidation by remortgaging is a way to repay debts by adding your debt to your mortgage balance. You use some of your home equity as collateral to borrow extra funds. These funds can pay off unsecured loans or credit cards. For people that want to consolidate this combines multiple debts into one mortgage loan.

How does remortgaging for debt consolidation work?

If you are struggling with unsecured debt it may be beneficial to add this to your mortgage and consolidate these debts into one manageable monthly payment. Taking this step must be done with caution as securing your debts is higher risk. The majority of lenders will then ignore your current monthly payments to these loans and credit cards with the proviso they will be cleared by the new mortgage. This can be done at remortgage stage, or if you are currently tied into a fixed rate there are a few other options.

We can approach your existing lender and ask for a further advance in order to clear the debts. If this is not possible we can either remortgage to a new lender, or ask another to lend you additional money with your current mortgage remaining in place. This is called a second charge mortgage as they fall behind your current lender.

How does a lender evaluate the eligibility for a remortgage for debt consolidation?

When assessing an application for a remortgage to consolidate debts, lenders will evaluate factors like: affordability based on income, existing commitments, and the higher loan amount being requested. They will also consider credit history, loan-to-value, and employment status. Defaults or missed payments may impact rates offered. Loan-to-value takes into account property value and equity available to secure the debt. Lenders also consider employment status and job security to determine risk levels.

Can I remortgage for debt consolidation if I have bad credit?

At Jones & Young, we understand that even borrowers with bad credit may need a debt consolidation mortgage to pay off debt and consolidate your debts. We specialise in finding solutions for complex situations.

When assessing credit, we dig deeper rather than just looking at the surface numbers. Life happens sometimes, and a missed payment here or there does not mean you are unreliable.

Our mortgage advisers leverage relationships with specialist mortgage lenders who are open to looking at the full picture. We can often find the best mortgage deal with reasonable rates/fees even with prior credit issues.

The key is affordability – can you handle the new consolidated monthly mortgage payment each month? We carefully assess your full financial situation first. Your loan to value ratio and equity in your home also helps reassure mortgage lenders.

At Jones & Young, we take the time to understand the backstory behind any credit problems before submitting a mortgage application. Explaining the context to mortgage lenders can help, as can demonstrating you have overcome past challenges.

Most importantly, we run the numbers to see if using a mortgage to consolidate saves money compared to multiple debts with higher rates like personal loans or credit cards.

What are the benefits of a debt consolidation mortgage?

The key benefits of a debt consolidation remortgage include:

  • Consolidating multiple debts into one
  • Ideally lower interest
  • Monthly payment
  • Freeing up disposable income previously spent on loan/credit repayments
  • Having a fixed end repayment date with the mortgage term
  • Easier budgeting with a single monthly payment; and potentially improving your credit score by settling debts.

A mortgage broker can advise if it’s suitable for you.

Are there any risks or drawbacks to remortgaging for debt consolidation?

The risks include: putting your home at risk if unable to maintain new higher mortgage repayments; potentially paying more overall interest by extending loan terms; possibility of early repayment charges to exit existing mortgage; legal/valuation fees on new mortgage; eligibility for decent rates with defaults or bad credit; and temptation to build up more debt if payments feel affordable. Getting independent advice from a qualified mortgage broker regarding your personal situation is essential before taking on additional secured debt against your property.

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90-95% Loan to Value (LTV)

Loan to Value(LTV) options typically 90-95%

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The Lenders average your income over the last 3 months' GROSS pay. Not the net amount from your tax calculations.

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Tailored advice recommended for your personal situation

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Access to the whole of market mortgage market to find you the best deal

What are the alternatives to remortgaging for debt consolidation?

Here are some alternatives to remortgaging for debt consolidation. The key things to think about are not adding to your secured debts against your home if possible, checking the costs of any arrangements to ensure they are affordable for your situation, and seeking professional debt help if you are struggling. 

Debt Management Plans

Work with a debt advice charity to set up an affordable repayment plan with your creditors. This allows you to pay back debts over time without taking out further borrowing.

0% balance transfer credit cards 

Apply for a 0% credit card deal to transfer existing debts to, avoiding interest payments for a set period. Make sure you can pay off the full balance by the end of the 0% term.

Debt consolidation loans

An unsecured personal loan used specifically to consolidate debts into one monthly repayment. This can simplify finances but be aware you may pay more interest overall.

Sell assets

Consider selling valuable items you own to raise funds to pay off debts. This allows you to become debt-free without taking on further borrowing.

Use savings

If possible, withdraw money from your savings account to eliminate debts in one go. This prevents you from borrowing more but ensure you have emergency funds leftover.

Increase income 

Earn extra money through a side hustle or second job to put towards clearing your debts. This additional income can help you pay off debts faster.

Is it possible to remortgage a property to consolidate debt without changing the interest rate?

Yes, it is possible to remortgage your property to consolidate debt without changing the interest rate, if you meet certain criteria. Here are a few ways you could do this:

Option

Pros

Cons

Further Advance from Existing Lender
– Retain current mortgage rate
– Borrow more to repay debts
– Already familiar with lender requirements

– Limited by initial affordability
– Reduces equity in property
– More secured debt against home

Product Transfer / Switch with Existing Lender
– Keep preferential mortgage rate
– Avoid early repayment charges
– Consolidate debts onto current mortgage

– Monthly payments likely increase
– Maximum lending caps apply
– More secured debt against home

Secured Personal Loan (Second Charge)

– Potentially lower rate than unsecured loans
– Spread repayment over longer timeframe

– Higher interest than main mortgage
– Complex application process
– Additional secured lending

Read What Our Recent Clients Say About Our Bad Credit Mortgage Broker Service

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Remortgage for debt consolidation FAQs:

We’ve done our best to try and answer some of the most frequently asked questions about remortgage for debt consolidation.

How does the interest rate factor into remortgaging for debt consolidation?
Generally, mortgage interest rates are lower than interest rates charged on most other forms of debt like credit cards or personal loans. By consolidating into your mortgage, you can potentially benefit from these lower rates and reduce your interest costs over time. However, it’s important to calculate precisely how the rate impacts overall costs, factoring in things like mortgage arrangement fees and debt repayment terms.

Yes, you can use a remortgage for debt consolidation to pay off credit card debt. When you remortgage your home, you can borrow extra money against the equity in your property to pay off existing debts like credit cards.

Consolidating credit card debts into your mortgage can have several benefits:

  • Lower interest rate. Mortgage rates are typically much lower than credit card interest rates. This can reduce your monthly payments and save you money over time.
  • Simplify payments. Instead of tracking multiple credit cards, you’ll have just one monthly mortgage payment to manage. This can make budgeting easier.
  • Pay off debt faster. By consolidating into a mortgage, you may be able to pay off your debt quicker by extending the repayment term. A mortgage can be paid back over 20-30 years versus 2-5 years for a credit card.

However, there are also risks to consider:

  • Your home is at risk if you default. Mortgages are secured debt, meaning your home could be repossessed if you fall behind on payments.
  • Higher long-term costs. Even at lower mortgage rates, you may end up paying more interest over the 30 year term versus a 5 year credit card.

So remortgaging can help tackle credit card debts, but be sure to calculate total costs and factor in risks before deciding if it’s the right option for your situation. Consulting with a mortgage adviser is highly recommended.

Please think carefully before securing other debts onto your current mortgage. Your home may be repossessed if you do not keep up repayments on your mortgage.

To get expert remortgage advice tailored to your individual situation, reach out to Jones & Young.

Our experienced mortgage advisers Mark Jones and Richard Young specialise in more complex remortgaging cases, including consolidating debts through remortgaging.

They will be able to assess your personal circumstances, calculate potential savings, recommend suitable products, and guide you through the process – avoiding pitfalls and ensuring you make the right decision.

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