Remortgaging for debt consolidation
Reduce your monthly outgoings and simplify your finances with a smart remortgage deal.
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What is a debt consolidation remortgage?
A debt consolidation remortgage is when you remortgage your home to release some of the equity in order to pay off debts like credit cards, overdrafts, student loan, or store cards. This means combining your debts into one monthly mortgage payment - usually at a lower interest rate.
Debt can feel overwhelming, especially when you're juggling multiple payments and due dates. A remortgage could reduce your stress by making things simpler and potentially cheaper each month.
How debt consolidation remortgaging works
When you remortgage, you're essentially replacing your existing mortgage with a new one, either with a different lender or with a new deal from your current one. If your home's value has increased or you've paid off a chunk of your mortgage already, you might have enough equity to cover your existing debts.
Let's say your home is worth £250,000 and you owe £150,000 on your mortgage. That gives you £100,000 in equity. Now let's say you owe £20,000 in credit card debt and personal loans, you could apply to increase your mortgage to £170,000 and use the extra £20,000 to clear debts.
Secured and unsecured debt
It's important to remember that you're turning unsecured loans (which don't put your home at risk) into a secured loan (which does). As with any secured debt, if you end up missing your remortgage payments, your home could be repossessed. So while it's a good option for some, others may find it less stressful to continue managing their debt as before.
Pros and cons of remortgaging for debt
Advantages:
- Lower mortgage rates: Mortgages usually have lower rates than unsecured finance, so you could pay less interest overall.
- Simplified payments: Managing one monthly payment instead of several can make budgeting much easier.
- Better cash flow: Reducing monthly outgoings gives you more breathing room, especially if you've been struggling.
- All types of debt: Clear various debt - whether you owe money on car loans, credit card transfers, or your current mortgage balance.
Disadvantages:
- Longer repayment term: You may end up paying more interest over time, even with a lower rate.
- Risk to your home: Your home is used as security, so if you fall behind, your lender could sell it to recover the loan.
- Fees and charges: There may be early repayment fees on your current mortgage or arrangement fees on the new deal.
- Additional borrowing: After consolidating, some people add to their current debt by borrowing money again and taking on new credit commitments.
Take an interest in mortgage terms
Let's say you're considering consolidation because you're spending £600 a month on debts. But when you look closely, you realise that stretching those payments over 20 years would cost far more in interest. The takeaway? It only makes sense if the numbers work for you - and you're confident you can keep up with the new monthly repayments.
Summing up
A debt consolidation remortgage can be a smart way to take control of your finances, but it's not a one-size-fits-all solution. Always weigh the long-term costs and make sure it's truly going to help - not just today, but in the future too.
Bear in mind that any secured debt comes with the risk of losing your home if you don't keep up your repayments. And remember that you can always get free debt advice from agencies like National Debtline, Citizens Advice, and StepChange.
Frequently Asked Questions
Can I consolidate debt if I have bad credit?
Yes, you can still consolidate with a poor credit history, though your options might be more limited. Some lenders specialise in bad credit mortgages, but you may face higher interest rates or stricter criteria. An advisor or mortgage broker can help you find deals suited to your situation and increase your chances of being accepted.
Will remortgaging for debt consolidation affect my credit score?
Yes, a debt consolidation mortgage can affect your credit score in both the short and long term. New mortgage applications leave a hard search on your file, which may cause a temporary dip. But if you use the funds to repay debts and keep up-to-date balances, your score can improve over time.
Is it cheaper than getting a personal loan?
In many cases, yes. Interest rates on remortgages are generally much lower than those for personal loans or credit cards. But since mortgages are typically repaid over longer terms, you might end up paying more in interest overall. It's essential to calculate the total cost and compare it carefully with shorter-term loan options.
Are there fees involved in remortgaging?
Yes, there are several potential fees built into the mortgage process. These may include arrangement fees for the new mortgage, legal fees, valuation costs, and possibly early repayment charges if you're an existing mortgage customer. Some lenders offer fee-free or low-fee remortgage options. Always check the full cost of switching to see if it makes good financial sense.
Should I remortgage with my existing lender?
Existing residential mortgage customers might find it convenient to remortgage with their current lender, especially if they have a good payment history. That said, your existing borrowing agreement could limit your options. It's always best to talk to a mortgage advisor to understand what's right for you, or schedule a mortgage appointment with your lender to discuss your options.
Can I remortgage for debt if I'm self-employed?
Yes, self-employed borrowers can apply for a debt consolidation remortgage, but you'll need to provide proof of income. Mortgage lenders typically ask for two years' worth of accounts or SA302s from HMRC. While it might mean more paperwork, many lenders now offer specific mortgage deals for self-employed applicants with flexible underwriting.
What if house prices fall after I remortgage?
If house prices fall, you could end up with less equity or even negative equity, meaning you owe more than your home is worth. This can make it harder to remortgage again or move home. It's important not to borrow up to the limit and to keep some equity in your property for the future.
About the author
Lawrence Howlett
Lawrence Howlett brings a results-driven mindset to his writing, shaped by over a decade of experience across finance, legal, and energy sectors. As the founder of Moneysavingadvisors, he’s built a reputation for turning complex financial concepts into clear, actionable insights for consumers. His writing stands out for its clarity, structure, and focus on delivering value.
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