For many homeowners, remortgaging represents an option to bring debts under control. Specifically, it’s possible to combine several outstanding balances into one single monthly repayment.
In this guide, we explain what debt consolidation remortgages are and how they work, while also looking at advantages and drawbacks and highlighting alternative solutions for those who find that remortgaging isn’t the right fit.
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What is Remortgaging for Debt Consolidation?
Remortgaging for debt consolidation is where you either switch your existing mortgage or move to a new lender in order to release equity from your home. The funds raised are then used to clear unsecured borrowing such as credit cards, personal loans, or overdrafts.
As opposed to juggling several repayments each month, the outstanding balances are combined into one mortgage payment. This therefore eases short-term financial pressure, especially where existing debts carry higher interest rates than your mortgage.
Despite this, rolling unsecured debt into your mortgage will extend the repayment period, so although your monthly costs fall, the total amount of interest paid over time increases. It’s for this reason important to weigh up both the immediate benefits and the long-term implications before coming to a decision.
What Types of Debt Can You Consolidate with a Remortgage?
Remortgaging in this manner can clear a wide range of unsecured borrowing, including balances on credit cards and store cards, personal loans, overdrafts, car finance, and even money borrowed from family or friends, assuming that there’s a formal repayment arrangement in place.
However, not all debts are suitable for consolidation in this way due to how borrowing which carries no interest (such as a 0% credit card) is generally excluded. Transferring interest-free debt onto a mortgage would increase the overall cost, as mortgage interest would then apply.
Eligibility Criteria for a Debt Consolidation Remortgage
When applying for a debt consolidation remortgage, lenders will assess your financial position, which involves reviewing your income and expenditure to confirm affordability, alongside checks on your credit record, the current value of your property, the level of borrowing needed, and the reasons behind the debts.
The amount of equity you hold in your home plays a part here in that borrowers with a lower LTV ratio generally have access to more competitive mortgage rates, and so increasing your borrowing will push you into a higher LTV band, which will result in less favourable terms and higher costs.
If you already have a mortgage and are nearing the end of a fixed or discounted rate, you can begin arranging a remortgage up to six months before that deal expires. If you don’t have an existing mortgage, you’ll still be able to raise funds through remortgaging subject to affordability and lender criteria, up to around 90% LTV.
Should You Remortgage to Consolidation Debt?
When it would be a good idea
Remortgaging in this context would be a good option if you have built up significant equity in your home and current mortgage rates are competitive. In these circumstances, consolidating higher-interest borrowing into your mortgage will reduce your monthly outgoings compared with taking out a personal loan, also giving you access to a larger sum than unsecured borrowing allows.
This approach likewise appeals to those looking for greater flexibility around repayments because unsecured loans are limited to shorter terms, i.e., up to seven years. By contrast, a remortgage spreads repayments over a much longer period, removing that short-term financial pressure.
When it wouldn’t be a good idea
Consolidating debt through a remortgage increases the amount secured against your property and reduces your remaining equity, meaning that your home will be at risk if you fail to keep up with repayments, given that the lender has the right to repossess.
It would similarly be poor value for smaller borrowing needs since remortgage fees, valuation costs, and an early repayment charge on your existing deal could work to outweigh the benefits, making alternatives such as a credit card or personal loan more cost-effective.
Alternative Options for Debt Consolidation
Borrowing more from your existing lender
Besides switching deals, you can instead increase your borrowing through a further advance with your current lender, allowing you to release additional funds without replacing your existing mortgage.
A further advance is particularly useful if you’re still within a fixed or discounted rate period and would have to pay out an early repayment charge if you remortgaged. Though the extra borrowing would be offered at a different interest rate to your original mortgage, both loans remain with the same lender, which simplifies admin and reduces costs.
Taking out a second charge mortgage
If a further advance isn’t available, or the cost of exiting your current mortgage is too high, a second charge mortgage is worth exploring. This option enables you to raise funds while leaving your existing mortgage in place.
A second charge loan is secured against your property alongside your main mortgage, meaning two separate loans are held on the same home, with each having its own interest rate, repayment term, and monthly payment, thereby giving you flexibility but at the same time requiring careful budgeting.
Get Extra Support for Debt Consolidation
Managing debt is understandably overwhelming, and even more so when your home is involved, so if you’re considering remortgaging as a way to regain control of your finances then our team is here to help you find out whether a debt consolidation remortgage is suitable relative to your situation.
Our online comparison tool lets you compare remortgage deals available across the UK, with rates being refreshed daily, making it easier to narrow down options that align with your financial circumstances and plans.
When you’re ready for the next step, our advisers will provide tailored support by taking the time to understand your income, commitments and objectives, in turn helping you make an informed choice rather than a rushed decision.
If you have questions at any stage, don’t hesitate to reach out. We’re committed to making the process straightforward, explaining everything clearly, and getting you a solution that truly works for you.
FAQs
The amount you’re able to get depends on your income and outgoings, the current value of your property, and how much equity you have built up. Lenders assess these things together to decide what level of borrowing is affordable for you.
Yes, homeowners can use secured borrowing to cover the cost of home improvements before consolidating that debt through a remortgage. This is worthwhile if the work increases the property’s value, as any uplift will be reflected when the home is eventually sold.
Yes, even if you’ve experienced credit issues such as missed payments or CCJs, borrowing options will still be available, yet the terms and choice of lenders will depend on the severity and age of any credit problems.
About the Author:
Matt is a top contributor at Speedy Remortgage and has worked in the financial services industry for over a decade now. Through his expertise on mortgage and remortgage has helped hundreds of customers to achieve their property goals.