Remortgage for Debt Consolidation

Remortgage for Debt Consolidation

Remortgaging to consolidate debt is a strategy that many homeowners consider when they are looking for a way to manage their finances. If you have unsecured debts such as personal loans or credit cards, using your home equity might be an option to simplify your monthly outgoings.

In this article, Henny Lessey explains how the process works, the types of debt that can be consolidated, the potential risks involved, and what lenders look for during the application process. Henny also explores the long-term implications on your mortgage and when it might be the right time to speak with a debt adviser or broker.

Can you remortgage to consolidate debt?

Many lenders allow you to remortgage for the purpose of paying off unsecured debts, such as personal loans or credit cards. While this is a common practice, your approval will depend on your specific financial circumstances.

How does remortgaging for debt consolidation actually work?

This process involves replacing your existing mortgage with a larger loan. The new mortgage settles your original balance and provides additional funds to clear other debts.

Typically, your solicitor will pay your creditors directly, leaving you with a single monthly repayment.

What types of debt can you roll into your mortgage?

Some unsecured debts can be included, such as credit cards, store cards, personal loans, overdrafts, and occasionally car finance.

However, lenders generally do not accept tax arrears, gambling debts, or very recent payday loans.

Is it cheaper long-term to consolidate debt into your mortgage compared to keeping separate loans?

While your monthly outgoings will likely decrease, it is often more expensive in the long term.

Because a mortgage is repaid over a much longer period, you will usually pay more interest overall unless you choose to shorten the mortgage term or make overpayments.

What do lenders look for when you apply to remortgage for debt consolidation?

Lenders will assess your income, employment stability, credit history, and the amount of equity in your property. They need to be satisfied that consolidating your debt will result in a genuine improvement to your financial situation.

How much equity do you need in your home to remortgage for this?

Lenders require you to have a Loan to Value (LTV) ratio of 85% or less after the debt has been consolidated. Although there are lenders who may consider applications at 90%, these are more difficult to secure.

Can you remortgage to pay off credit cards if you have a poor credit history?

It is possible to remortgage with a poor credit history, including defaults or County Court Judgments (CCJs), but it is more challenging.

Depending on the lender, borrowers with a poor credit history may be subject to more stringent lending criteria and higher interest rates