What we cover in this guide
- Can I get a remortgage to clear my debt?
- Try our mortgage affordability calculator
- Is it a good idea to remortgage for debt consolidation?
- Read our remortgage guide
- What type of debt can you consolidate into a mortgage?
- Can you remortgage for debt consolidation with bad credit?
- Secured loans for debt consolidation
- Remortgage for debt consolidation
- Debt consolidation mortgage advice
We have created this useful guide to help you make an informed decision about debt consolidation mortgages.
Can I get a remortgage to clear my debt?
It is possible to consolidate debt into a mortgage. If you are a homeowner with an existing mortgage, the accrued equity in your home can help you to improve your financial situation.
How does mortgage debt consolidation work?
The equity in your home can be used to consolidate debts, allowing you to merge multiple payments into a single, more manageable monthly payment. You may be able to do this with your existing lender or you may get a better interest rate with a specialist lender.
It is not possible as a first-time buyer to gain a debt consolidation mortgage, as you must have equity in your home to release.
Advantages of debt consolidation remortgaging
- Mortgage rates are often lower than the rates found on unsecured debts like credit cards and loans. If you can secure a lower interest rate through remortgaging, you could save money over time.
- Consolidating your debt can simplify your finances by reducing your monthly payments into one.
- Debt consolidation can lower your overall monthly payments, but it might result in paying more interest over the long term. Evaluate the difference between lower monthly payments and the total cost of borrowing. Our mortgage advisers can help you with these calculations.
- Lower payments would lead to increased spare capital each month to help you to budget more effectively.
Disadvantages of debt consolidation remortgaging
- Additional borrowing on your mortgage to clear debt can put your home at risk if you can’t keep up with your payments.
- Borrowing money against your property will also reduce the amount of overall equity in your home.
- There is the potential that you may pay more interest in the long run if your term is longer.
- You may incur an early repayment charge from some lenders if you pay them back before the end of the repayment term set.
Why is it so hard to consolidate debt?
If you’re struggling to consolidate your debts with a loan or remortgage, it could be for different reasons such as:
- You don’t make enough money to keep up with the repayments
- Your credit score is too low
- Your current debt to income ratio is too high
Is it bad to consolidate debt?
Exploring debt consolidation as a financial strategy has the potential to simplify your payment structure, expedite your journey to becoming debt-free, and potentially result in cost savings. Nevertheless, it’s essential to recognise that while debt consolidation can be advantageous, it may not always be the most suitable solution. To make an informed decision on how to address your debt situation, it is imperative to assess your unique circumstances and financial objectives carefully.
Does debt consolidation affect your credit score?
Debt consolidation will affect your credit score as you are applying for more credit. At first, you may see a drop in credit, however, over time you will likely see an increase as long as you don’t keep applying for more credit.
The peace of mind you would get from paying off all your debts and bringing what you owe under one single monthly repayment is eclipsed only by the substantial potential financial benefit you can gain from consolidating your debts in a remortgage deal. Interest rates for remortgages are usually much better than those for short-term loans.
Here is an illustration of how interest rates and payments can compare:
Single Mortgage Loan:
|Saving of £327 PER MONTH
As ever, you should always remember that everyone’s circumstances are different, and you should take a careful look at how this would work in your own situation before making a decision.