What are debt consolidation mortgages?

What are debt consolidation mortgages?

A debt consolidation mortgage is a mortgage where you add all or some of your existing debts to so you have one payment for all your current debts. Debt consolidation mortgages are usually done when a person is remortgaging.

How does a debt consolidation mortgage work?

Let’s assume you have 2 credit cards which have balances which you have carried over for a few months and an unsecured personal loan.

You will likely be making 2 minimum repayments on the credit card and your monthly repayment on your personal loan.

If you already have a mortgage and are eligible for a remortgage you could simply request a debt consolidation mortgage which will allow you to increase your borrowing to cover the balances or settlement figures from your 2 credit cards and personal loans.

So if you owe £3,000 on credit card one and £11500 on credit card two and £12,000 on the unsecured personal loan then you could increase our borrowing from your mortgage lender by £23,500 to cover the balances on all your existing debts.

To get the settlement figures on your debts you should contact each provider and ask them for this.

The settlement figure is the amount you will need to pay for the account to be settled and brought up to date.

A debt consolidation mortgage which essentially allows you to borrow the extra amount you need to borrow so you can pay off your debts.

The cons of debt consolidation mortgages?

Debt consolidation mortgages will usually require borrowers who have excellent credit scores or sufficient equity in their current homes.

Some mortgage lenders may also prefer those that have unmortgaged properties as this means they will usually be lending a smaller amount to them rather than an advance on their mortgage.

Debt consolidation mortgages mean you are adding more debt to your home and this means you increase the likelihood of defaulting on your mortgage and having your home repossessed.

The biggest disadvantage of a debt consolidation mortgage is that they may likely cost significantly more in interest as you are usually taking short term borrowing and borrowing it over such a long time e.g 30 years.

Some debt consolidation mortgages may not allow you to overpay on your mortgage to reduce the cost of interest or may charge you high fees for overpaying on your debt consolidation mortgage. This could mean you have less flexibility and can’t help yourself even when you become more financially capable.

Pros of debt consolidation mortgages

Although you borrow over such a long time with debt consolidation mortgages you may be able to overpay on your mortgage when you become more financially capable and reduce the effect of a much more costly debt when interest is charged over such a long term as a mortgage.

Debt consolidation mortgages allow you to focus on making one monthly repayment rather than having many. This means you are more likely to keep on top of things.

Debt consolidations may reduce the amount you repay each month from your debts as your monthly payments are now spread over such a long term.

Debt consolidation mortgage may have higher APRs than standard residential mortgages due to the increased risk the debt consolidation mortgage lender takes.

Can you get a debt consolidation mortgage if you have bad credit?

If you have bad credit then getting a debt consolidation mortgage may be slightly harder than usual.

This is because the debt consolidation mortgage lender will likely analyse your mortgage application to see what your credit behaviour is truly like and if they are confident lending to you.

Whether you can get a debt consolidation mrotgage with bad credit will really depend on your individual circumstances. Did you pay off the debts? How many payments did you miss? What type of bad credit? Etc

Bad credit could include:



A debt management plan

A default

A bankruptcy

A home reposession

You may want to consider using a bad credit mortgage broker who may be able to assist you in getting a debt consolidation mortgage if you have bad credit.

Can you get a debt consolidation mortgage if you have bad debts?

You may be able to get a debt consolidation with bad debts as long as the mortgage lender is certain that you can maintain the repayments on your debt consolidation mortgage.

The debt consolidation mortgage lender will likely put you through its mortgage affordability assessment to see if you can manage the monthly mortgage repayments on your debt consolidation mortgage.

Can you get a debt consolidation mortgage if you are self-employed?

Getting a debt consolidation mortgage if you are self-employed will really depend on how you are able to evidence your income.

Debt consolidation mortgage lenders like to see that a borrower has a stable income which can be relied upon to make the debt consolidation mortgage repayments.

The debt consolidation mortgage lender will likely want to see at least 3 years worth of accounts. If you dont have 3 years worth of accounts then there maybe debt consolidation mortgage lenders who will accept 12 months + worth of accounts but you may need the help of a self-employed mortgage broker.

Where can you get a debt consolidation mortgage?

To get a debt consolidation mortgage you should speak to a mortgage broker who has some experience of processing debt consolidation mortgage applications. The mortgage broker will likely want to see the settlement figure for your current debts initially.

With a debt consolidation mortgage, you dnt necessary have to stay with your current mortgage lender(If you have one). You may choose to remortgage to another mortgage lender who will provide enough capital to cover your current mortgage and the debts you want to consolidate.

You could also take on a second charge mortgage to pay off your debts but it is likely you will have to get permission from your first charge mortgage lender so you do not break the terms of your mortgage agreement.

A debt consolidation mortgage may not be a good idea for you if you are currently struggling to keep up your monthly repayments on your mortgage but it may be a good idea for you if you are repaying your mortgage but can’t cope with your other debts and need some time to restructure your finance.

Debt consolidation mortgages should not be treated in the same vein as standard residential mortgages. You may want to seek advice from a debt charity such as stepchange and from an independent mortgage broker

Yes, you can get a mortgage to consolidate debt but you should seek advicce from an ndpendent mortgage broker as debt consolidation shoubd be taken very eriously and you could lose your home if you arent careful.

Can I borrow more money on my mortgage for home improvements?

some mrotgage lenders will let you borrow moremoney on your mortgage for home improvements and some others will simply allow you to get a secured home improvement loan which places a second charge on your property.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.