Remortgage to consolidate your debt into one lower payment

Remortgaging to consolidate your debts means switching your existing mortgage to a new deal and borrowing extra money on top. You use that additional borrowing to repay debts like credit cards, personal loans, store cards, and overdrafts by combining them into a single loan secured against your home.

Instead of making five or six different payments each month to various lenders at different interest rates, you end up with one monthly payment on your mortgage. Your unsecured debts disappear because they have been paid off in full using the new mortgage. But your mortgage balance increases by the amount you borrowed to clear them, resulting in a single loan to manage.

That monthly saving looks attractive. But here is what those figures do not immediately show: if you spread that £23,000 of debt over your remaining 20-year mortgage term instead of paying it off over 3-5 years, you will pay significantly more interest overall. This is the central trade-off with debt consolidation remortgages.

The difference between remortgaging and further advances

When you want to borrow more against your home, you have two main options: remortgaging with a new lender, or asking your existing lender for a further advance.

Remortgaging means moving your entire mortgage to a new lender who will pay off your existing mortgage and give you additional funds. You get a completely fresh deal with new rates and terms.

A further advance means staying with your existing lender and simply borrowing more on top. The extra borrowing might come with a different interest rate than your main mortgage. A second charge mortgage also allows you to borrow against your home without remortgaging your existing mortgage.

If you are still within your initial fixed or discounted rate period, a further advance often makes more sense because you will not trigger early repayment charges (ERCs) on your existing mortgage. ERCs can run as high as 5% of your outstanding balance in the early years, potentially costing thousands of pounds.

You can typically consolidate most forms of unsecured debt into a remortgage:

• Credit cards
• Personal loans and unsecured loans
• Overdrafts
• Store cards
• Hire purchase agreements
• Outstanding utility bills
• Tax debts (in some cases)

One important exception: you cannot usually consolidate 0% interest debts like balance transfer credit cards that are still within their interest-free period. Lenders do not consider this sensible because you would be moving debt from 0% interest to 4-5% interest.

Similarly, student loans are not suitable for consolidation because their repayment terms and interest calculations work differently from standard debt. Gambling debts and unpaid income tax bills are also typically not accepted by most lenders.

Understanding the true cost of a debt consolidation remortgage requires looking beyond the monthly payment. By securing debts against your home, you risk paying more interest over time and putting your property at risk. There are upfront costs to factor in and, crucially, the total interest you will pay over the life of the loan.

Spreading your repayments over a longer period can make monthly payments more manageable, but it also means you will likely pay more in interest overall.

The real cost: interest over time

Consider this realistic example. Sarah has an outstanding mortgage of £180,000 with 18 years remaining at 4.5%, credit card debt of £12,000 at 24.66%, and a personal loan of £8,000 at 9.9% with 3 years remaining.

Option A: Keep debts separate. If Sarah aggressively paid off her credit card over 3 years at £450 per month, she would pay about £4,200 in interest. Her personal loan would cost £1,200 more in interest. Total interest on debts: approximately £5,400.

Option B: Consolidate into mortgage. Adding £20,000 to her mortgage at 4.8% over the remaining 18 years would mean about £10,300 in additional interest.

Even with a lower interest rate, spreading the debt over 18 years instead of 3 years means Sarah pays nearly double the interest. However, if Sarah can only afford minimum payments on her credit card, it could take 20+ years to clear and cost over £18,000 in interest.

The key to making debt consolidation worthwhile is to avoid extending the repayment period unnecessarily. Most mortgages allow overpayments of up to 10% of the balance each year without triggering early repayment charges. Using overpayments strategically can significantly reduce the total interest paid.

When it makes sense

• You have substantial high-interest debt: If you are carrying £15,000+ on credit cards at 20%+ interest and struggling to make more than minimum payments, the interest savings from consolidation can be significant even accounting for the longer term.
• You need breathing room in your monthly budget: If high monthly payments are causing you to miss payments, damage your credit score, or take on even more debt, consolidation can break that cycle.
• You have a clear plan to overpay: Those who treat the monthly savings as money to overpay rather than money to spend see the best outcomes. Putting that monthly saving back into overpayments gives you both cash flow relief and avoids much of the extra long-term interest.
• You have decent equity and a stable income: Lenders offering the best rates typically want at least 25% equity remaining after consolidation and clear evidence that you can afford the new payment comfortably.

When it might not be right for you

• Your debt is relatively small: For debts under £10,000, the setup costs and hassle of remortgaging may outweigh the benefits. A 0% balance transfer card or personal loan might be simpler and cheaper.
• You are still in your fixed rate period: Early repayment charges can wipe out years of interest savings. If you are two years into a five-year fix with a 3% ERC, you could pay £6,000 on a £200,000 mortgage just to switch.
• Your spending habits have not changed: If your debt comes from consistent overspending rather than a one-off event like job loss or medical bills, consolidation without addressing the root cause may lead to accumulating new debt.
• You are struggling with mortgage payments already: If you are already behind on your mortgage, adding more debt is not the answer. Contact your lender about forbearance options and consider free debt advice from StepChange or Citizens Advice.

The amount you can borrow depends on two main factors: the equity in your property and your affordability. Consolidating debts into your mortgage will reduce the equity in your property.

Loan-to-value limits

Loan-to-value (LTV) is your total borrowing as a percentage of your property's value. Most lenders cap debt consolidation remortgages at 85% LTV, meaning you need at least 15% equity remaining after the consolidation.

For example, on a property worth £300,000 with a maximum 85% LTV, the maximum total mortgage would be £255,000. With a current mortgage of £180,000, the maximum additional borrowing would be £75,000.

Some specialist lenders will go up to 90% LTV for debt consolidation, but the interest rates at this level are noticeably higher. At 90%+ LTV, most lenders will not allow borrowing specifically for debt consolidation.

Affordability assessment

Even with sufficient equity, lenders will only let you borrow what you can afford to repay. They use stress tests to make sure you could still afford your mortgage if interest rates rose. Generally, you can expect to borrow around 4-4.5 times your annual household income, though this varies by lender and individual circumstances.

A broker can give you a much clearer picture of realistic borrowing amounts based on your specific situation without affecting your credit score.

Advantages

• Lower monthly payments: Mortgage rates are significantly lower than credit card rates. The average mortgage rate is around 4.5% while the average credit card rate exceeds 24%, creating real monthly savings.
• Simplified finances: One payment instead of five or six, one due date to remember, and one balance to track. This reduces stress and makes budgeting easier.
• Potential credit score improvement: Paying off credit cards and loans in full registers positively on your credit file. As long as you do not run up new balances, your credit utilisation drops and your score typically improves.
• Fixed payment option: If you choose a fixed-rate mortgage, you know exactly what you will pay each month for the fixed period.

Disadvantages

• You are securing unsecured debt: By remortgaging to consolidate, you are securing debts against your property. If you miss payments on your mortgage, you could lose your home.
• You may pay more interest overall: Spreading debt over 15-25 years instead of 3-5 years usually means paying more total interest, even at a lower rate.
• Setup costs: Valuation fees, legal fees, arrangement fees, and potential early repayment charges can add £500 to £3,000+ to the cost.
• Risk of accumulating new debt: With credit cards paid off and showing zero balances, there is nothing stopping you from spending on them again. About 30% of people who consolidate debt end up back in the same position within five years.
• Reduced equity: Using equity to clear debts means less equity available for future needs like home improvements or moving house.

Poor credit history

Having defaults, missed payments, or other adverse credit does not automatically disqualify you from a debt consolidation remortgage, but it does affect your options. Specialist lenders consider applications from customers with recent defaults, missed payments on credit agreements, debt management plans, and lower credit scores.

Expect to pay higher interest rates than someone with a clean credit file. Rates for adverse credit remortgages typically start around 5.5-6% and can go higher depending on the severity and recency of credit issues. What matters most is the age of the adverse information: a default from four years ago has much less impact than one from six months ago. After six years, most negative information drops off your credit file entirely.

Self-employment

Self-employed applicants face additional scrutiny but are not excluded. Most lenders want to see two years of accounts or tax returns showing consistent income. Your income is typically calculated as the average of your last two or three years' earnings, so a good recent year following a weaker year might not immediately increase your borrowing capacity.

Over 55

Age does not prevent you from remortgaging, but it affects the maximum term lenders will offer. Most mainstream lenders want the mortgage paid off by age 70-75. Specialist later-life lenders will consider mortgages that extend into retirement, typically up to age 80-85 at the end of term. They will want to see that your pension income will support the payments.

Variable income

Commission, bonuses, overtime, and seasonal work all count as variable income. Typically, only 50-60% of variable income is used in affordability calculations. You will need evidence of the variable income being paid consistently over the last 2-3 years.

• Not checking early repayment charges first: Before doing anything else, find out what it would cost to leave your current mortgage deal. If you have an ERC of £4,000 to pay, factor that into any comparison. You might be better waiting until your deal ends.
• Focusing only on monthly payments: A lower monthly payment feels good but might cost you more overall. Always calculate the total interest you will pay over the full term and compare it properly.
• Not closing credit accounts: Leaving credit cards open with zero balances creates temptation and can work against you in future credit applications. Close store cards and rarely-used accounts. Keep one card if you use it responsibly for things like travel bookings.
• Consolidating 0% interest debt: Moving a 0% balance transfer card balance onto a 4.8% mortgage makes no financial sense. Wait until the 0% period ends or is about to end.
• Not addressing the underlying issue: Consolidation is a financial tool, not a behaviour change. If overspending caused your debt, consolidation without a proper budget just delays the problem. Free services like Money Helper can help with budgeting tools and guidance.