Debt Consolidation Remortgage

If you're struggling with debt, a debt consolidation remortgage could be a good way to get your finances back on track. By consolidating your debts into one monthly payment, you could reduce your overall monthly outgoings, giving you some much-needed breathing space.

However, moving unsecured debt (not secured on your home) to secured debt (secured on your home) should not be done lightly, and you should always seek professional financial advice before taking out a debt consolidation mortgage. If you fall behind on your payments, you could lose your home. Although the interest rates on debt consolidation mortgages are often lower than the interest rates on other types of borrowing, such as credit cards and personal loans, you may end up paying more in the long term.

Before you decide on remortgaging for debt consolidation, make sure you understand the risks and benefits involved. This guide will help you decide if a debt consolidation mortgage is right for you.

Can I remortgage for debt consolidation?

If you have equity in your home, you may be able to remortgage for debt consolidation. This can be a good way to reduce your monthly payments and the overall amount of interest you're paying, as mortgage rates are typically lower than credit card or loan rates.

However, adding more to your mortgage may not be the cheapest way to consolidate your debts, and it could take you longer to pay off your mortgage if you extend the term.

If you're considering this option, make sure you compare the total cost of all your debts – including any new monthly mortgage payments – with the total cost of repaying your debts under your current arrangement. This will help you work out whether consolidating your debts will save money in the long run.

What are the risks of consolidating debt with a mortgage?

As well as the general risks associated with taking out a mortgage, there are some specific risks to consider when consolidating debt with a remortgage:

- If you're struggling to make your monthly payments, consolidating your debts into one monthly mortgage payment could put your home at risk.

- If you miss a mortgage payment, your credit score will be more affected and it could become more difficult to borrow money in the future.

- If you extend the term of your mortgage, you could end up paying more interest overall.

Make sure you understand the risks involved and get professional financial advice before taking out a new mortgage.

Debt consolidation remortgages and LTV

The mortgage provider will assess your affordability and calculate your loan-to-value (LTV) ratio. Depending on how much equity you have in your home, the lender's criteria and your circumstances, you may be able to borrow enough to clear your existing debts.

Your LTV is the amount you want to borrow, expressed as a percentage of your property's value. For example, if your property is valued at £200,000 and you want to borrow £100,000, your LTV would be 50%.

Most mortgage lenders will only offer a remortgage for debt consolidation with an LTV of 80% or less. This means you'll need at least 20% equity in your property to be eligible.

If you don't have enough equity in your property (your LTV is too high), you may still be able to consolidate your debts with a personal loan or by transferring your balances to a 0% interest credit card.

How does a debt consolidation mortgage work?

If you decide to go ahead, there are 3 general options to choose from:

- Get a Further Advance on your existing mortgage. This is usually the quickest and easiest option. However, you are not guaranteed to be approved for a Further Advance, especially if your financial situation has changed since you took out your original mortgage, for example, if you have bad credit or a poor credit rating. Your lender will want to know why you're looking to borrow more money and they'll assess your affordability before making a decision.

They'll ask for details on your credit card debts, unsecured loans and other debts, as well as your current income and outgoings. They'll also look at your property value to make sure you have enough equity in your home.

- Remortgage either with your existing lender or a new lender. You may be able to get a better deal on your mortgage interest rate if you switch to a new lender. However, this option will take longer as you'll need to go through the mortgage application process again.

This decision should not be taken lightly especially if you are facing an early repayment charge with your current mortgage deal.

- Take out a second mortgage. A second mortgage is a loan that's secured against your property, similar to your main mortgage. The interest rate is usually higher than on your main mortgage and you'll have two separate monthly repayments to make. Mortgage lenders tend to be more cautious when it comes to second mortgages, so you may find it harder to be approved.

Debt consolidation remortgages and early repayment charges

If you're thinking about consolidating your debts with a remortgage, it's important to check if you'll incur any early repayment charges (ERCs) with your current mortgage.

Most standard variable rate and tracker mortgages have ERCs, which means you may have to pay a fee if you repay your mortgage early or switch to a new deal before the end of your initial term.

The size of the fee will depend on your mortgage lender and how long you've been paying into your mortgage.

If you have an interest-only mortgage, you'll need to make sure you have a repayment plan in place before consolidating your debts with a remortgage, as you'll need to repay the full amount of your mortgage when it ends.

If you're not sure whether you have an ERC, check your mortgage terms and conditions or contact your mortgage lender. They should be able to tell you how much the fee would be if you repaid your mortgage early.

Can I get a remortgage to consolidate debt if I have bad credit?

If your personal situation has changed since you took out your mortgage, for example, if you've experienced financial difficulties or have bad credit, it may be more difficult to be approved for a debt consolidation remortgage.

Lenders will want to know why you're looking to borrow more money and they'll assess your affordability before making a decision. It's important to be honest with your mortgage broker and to provide as much information as possible about your current financial situation.

If you're struggling with debt, there are other options available to you. You could speak to a debt counsellor or look into getting a personal loan that is not secured on your home.

Debt consolidation remortgage disadvantages

There are a few things to consider before taking out a debt consolidation remortgage, as there are both advantages and disadvantages:

- One of the main disadvantages is that you're extending the term of your mortgage, which means you could end up paying more interest in the long run.

- If you have an ERC with your current mortgage, you may have to pay a fee if you switch to a new deal or repay your mortgage early.

- You're also using your home as security for the loan, which means your home could be repossessed if you can't keep up with your repayments.

Speak to a mortgage broker

If you're looking at options to consolidate debts, a mortgage broker can help you find the right solution for your needs. They'll assess your financial situation and provide you with impartial advice on the different options available to you, including debt consolidation remortgages. Remortgaging for debt consolidation may not be the right solution for everyone, so it's important to get professional mortgage advice before making any decisions.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Comparing mortgage rates

When you're comparing mortgage rates, it's important to look at the annual percentage rate (APR) as well as the headline interest rate. The APR takes into account the fees and charges associated with a mortgage, which means it gives you a more accurate idea of the overall cost of the loan.

When you're comparing deals, make sure you look at the following:

- The interest rate: This is the amount of interest you'll pay on your loan. Look for a competitive rate to keep your monthly repayments down.

- The APR: This is the overall cost of the loan, including any fees and charges