In this brief guide, we will discuss how to remortgage for debt consolidation.

Remortgaging your property is a very good way to consolidate debts and ease the financial burden on you.

If you have too many monthly financial repayments which are making you struggle each month then remortgaging those debts into one monthly mortgage payment could be a good option.

You may be able to reduce your monthly repayments ut you should be aware: remortgaging your debts could mean that you incur a higher toral cost of interest over the lifetime of the mortgage.

The good news is that it is very possible to remortgage for debt consolidation by essentially increasing your level of borrowing with your mortgage lender or a new mortgage lender.

When getting a remortgage for debt consolidation purposes you should be aware that although your overall monthly repayments for all your debts may reduce, your monthly mortgage repayments may increase and the mortgage lender will need to ensure that you can afford to make these monthly mortgage repayment.

When you remortgage for debt consolidation you could remortgage on to a fixed-rate deal, an offset mortgage or a variable rate deal.

What is debt consolidation?

Debt consolidation is the process of paying off your debts with one loan. This means you will now have one monthly repayment rather than numerous. This can make your finances much easier to manage.

Debt consolidation could also reduce the amount of interest you are paying on your debt if the total cost of interest on the new loan is much cheaper than what you would have paid on all of your previous debts put together.

Sometime the total cost of interest will be much higher with the new loan but the ability to manage the monthly repayments on the new loan will be seen as a bigger advantage.  By doing it this way at least monthly repayments can all be made on time and the risk of damaging your credit score or incurring late payment fees reduces.

Should I consolidate my debts?

Consolidation of your debts is not a way to avoid your debts and the question of if you should consolidate your debts can only be answered on an individual basis.

It all depends on the cost of your debt, how many debts you have and if you can find a suitable credit product to consolidate your debts.

Debt consolidation can be done with a mortgage, a loan or even credit cards.

What does it mean to remortgage for debt consolidation?

Remortgaging for debt consolidation is when you remortgage and release equity which is used to repay off your debts. Remortgaging may increase your monthly mortgage repayments.

Remortgaging is a method to replace your current mortgage with a new mortgage. This can be a bigger, smaller or the same mortgage amount.

Most people remortgage to get a better mortgage rate but you can also remortgage to consolidate all or some of your debts.  Remortgaging will usually move the amount you repay on your mortgage in one way or the other depending on why you are remortgaging.

An example of remortgaging for debt consolidation may be remortgaging and borrowing an additional £10,000( in cash) which you use to pay off your credit card debts, any personal loans and other debt.

The increased borrowing will then be added to your mortgage balance. This could potentially save you interest repayments on all those debts.

Another important thing to note is when remortgaging to consolidate debts which were previously unsecured debts, you will have now secured that extra borrowing on your property and could potentially lose your property if you default on your monthly mortgage repayments.

Why could you want to remortgage for debt consolidation?

You may want to remortgage to consolidate your debts for any reasons, such as:

  • Managing your monthly repayments to become more affordable
  • Remortgaging could give you more funds to pay off any existing debts

Will your current lender borrow you more?

You current mortgage lender may not want to borrow you more funds as they could have reached their maximum borrowing limit on you or maybe the amount you want to borrow will take you beyond this.

If this is the case then you may need to find a new mortgage lender.

Advantages of getting a remortgage for debt consolidation

Remortgaging for debt consolidation has a few benefits, some are:

  • You may be able to save in interest repayments by consolidating your debts when remortgaging
  • You may also have greater control over your finances by reducing the number of monthly repayments you have. This could also make your debts more affordable.
  • You could reduce your total monthly repayment and hence have more disposable income at the end of the month for financial emergencies

Disadvantages of getting a remortgage for debt consolidation

There are several disadvantages on remortgaging for debt consolidation and you should take this account when making your decision.

Some of the disadvantages are:

  • You could end up paying much more in interest over the life of your mortgage with the new borrowing than you would have paid if you didn’t consolidate your debts. This is because of the mortgage charges interest over a longer-term than most unsecured borrowing such as credit cards and personal loans.
  • Your monthly mortgage repayment could also increase
  • You may have to pay mortgage fees as part of your remortgage
  • .The mortgage lender will need to ensure you pass the mortgage affordability checks and there is no guarantee you will get a remortgage.

Can you get a debt consolidation mortgage?

Yes, you may be able to get a debt consolidation mortgage but this all depends on the mortgage lenders mortgage affordability criteria.

The mortgage lender will look at your credit score, your income and any other debts you may have to ensure that you can afford to repay any additional borrowing over the lifetime of your mortgage.

Can you pay off a debt consolidation remortgage early?

Yes, you may be able to pay off a debt consolidation remortgage early but this is entirely dependant on the terms of the new mortgage you take out.

If your new mortgage has early repayment fees then you will need to take this into consideration if you want to repay the mortgage in full or make any mortgage overpayments.

There may be many benefits to paying off the mortgage early or making regular overpayments as this could reduce the amount of interest you may have to pay back on any additional borrowing.

Secured loan vs a remortgage

We all have different circumstances and hence it is very important to have different financial options in place so we can decide which is the best way of reducing our debts.

It may be the case that a secured loan may suit your circumstances much better than getting a debt consolidation remortgage.

Getting mortgage advice may be very helpful in these situations as the mortgage advisor will be able to decide what the best route forward is.

Getting a secured loan for debt consolidation

A mentioned above a secured loan may be a much better option than getting a remortgage for debt consolidation.

A secured loan is essentially a 2nd charge ( if you already have a 1st charge ie: a mortgage on your property) on your property.

The lender will be snd in line to the proceeds of the same of your home if you defaulted on the mortgage.

Secured loans tend to be much cheaper than their interest-only counterparts.

If you do not have enough equity in your home then a secured loan could be a much better alternative.

A secured loan could also be a good option if you have bad credit and are unable to attract any suitable mortgage lenders for a remortgage.

You could also find a secured loan a much better option than remortgaging for debt consolidation as you may have a good fixed rate mortgage which you do not want to lose or maybe the early repayment charges on your mortgage are too high.

Unsecured loans to consolidate debts

You could also use unsecured loans such as personal loans or credit cards t consolidate your debts into one monthly affordable repayment.

Unsecured loans may be more beneficial to you if you do not want further debt secured on your property.

Using a debt management company

A lot of changes have come into effect which has made most debt management companies which used to dominate the debt management market go bankrupt.

Using a debt management company to get your finances under control may first seem like a good idea but it is always worth speaking to a mortgage broker to see what your options are.

Debt management companies will usually negotiate with a lender to freeze your monthly repayments but this will instead add to your problems as you will likely be flagged as missing these repayments on your credit report.

This could then make it much harder for you to get any mortgage in the future.

FAQs: remortgage for debt consolidation

Can I remortgage on a DMP?

Yes, you may be able to get a remortgage with a DMP but this will depend on your credit history since the DMP, the amount of equity you have in your property and the amount of further borrowing you want (if any).

Using a mortgage broker

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 remortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which remortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.

Once you are satisfied with the mortgage in principle then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your remortgage with the help of a conveyancer.

In this brief guide, we will discuss how to remortgage for debt consolidation.

If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.