Remortgage For Debt Consolidation
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Do you owe quite a bit on credit cards or personal loans? Feel like you’re paying high rates of interest or that your monthly outgoings are a bit too high? Remortgaging to consolidate some or all of your debt might be worth considering.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.
How does a remortgage for debt consolidation work?
A remortgage involves replacing your current mortgage with a new one from a different lender.
If you are remortgaging for debt consolidation, this means adding your debt to your mortgage balance. In other words, you borrow more on your mortgage and use the additional borrowing to pay off credit cards and loans.
There are three key factors that determine whether you can borrow more when remortgaging:
- Equity in your home – the difference between the value of the property and how much you owe on mortgages and secured loans. If you have a repayment mortgage, each payment you make reduces what you owe and consequently increases your equity. Lenders restrict what you can borrow based partly on the level of equity you’ll have once the new mortgage is taken out. If you only have a small amount of equity now, you might not be able to raise more money.
- The value of the property – if property prices have risen, your level of equity will also have increased.
- Financial circumstances – as with any mortgage, a remortgage for debt consolidation has to be deemed affordable following an assessment of income and expenditure.
Please also read our general guide to remortgaging for a more in-depth look at the remortgaging process.
When should I look to remortgage?
You can look to remortgage at any time. However, if you are tied into a deal, there may be early repayment charges and exit fees to pay. Remortgaging might not be cost-effective in this case.
Most people remortgage at the end of their fixed, tracker, or discounted rate period. This tends to be when early repayment charges cease to be payable. If you’re mid-deal and want to explore your options, you might want to consider a further advance, second charge mortgage, or unsecured lending instead.
Please note that we do not arrange second charge mortgages or unsecured lending here at The Mortgage Store Chorley. We would refer to a third party instead.
As always, only borrow what you need and what you can afford to pay back.
Why The Mortgage Store Chorley?
Exclusive rates you won’t get directly from lenders
A dedicated point of contact from initial enquiry right through to completion and beyond
Appointments seven days a week, to best suit your schedule
Ongoing rate monitoring until completion as standard
Do you have a question?
What are the benefits of a remortgage for debt consolidation?
The main advantage is that it can get you out of a hole. If you’re struggling to manage your debt, consolidating everything into one monthly payment can really help.
Debt consolidation should only be used sparingly. It isn’t something you should look to do every few years. Once your debt has been consolidated, you should make lifestyle changes to ensure you don’t end up in the same situation again.
What are the downsides of a remortgage for debt consolidation?
Consolidating debt onto your mortgage means a higher mortgage balance, and a bigger debt secured against your home. If you’re struggling to pay your mortgage, the lender can look to repossess your property.
It could also cost you more in the long-term. Credit cards and loans typically have higher interest rates than mortgages, but they’re generally paid off over a shorter period. If you add the debt onto your mortgage, you could be paying it back for much longer, which is likely to cost you more in total.
Things to consider before a remortgage for debt consolidation
It’s very important to think about the risks associated with a remortgage for debt consolidation.
Your home could be repossessed if you’re unable to keep up your monthly repayments. Increasing the amount you need to pay for your mortgage every month could put your home at risk. Think about how you’ll pay the mortgage, including contingencies in case your circumstances change and you are unable to keep up with payments.
The total amount you end up paying back could be higher. Mortgage interest rates are typically lower than interest rates on unsecured debts – but the terms are usually much longer. That means in the long-term you could end up paying more if you remortgage with the goal of paying off debts.
It may be cheaper to go down another route, such as a 0% credit card or unsecured loan. These can offer lower-cost ways of clearing your debt without putting your home at risk.
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Will my credit score be affected if I consolidate debt onto my mortgage?
Debt consolidation doesn’t show up specifically on your credit report.
Any new accounts that you open in order to clear existing debt will appear. Opening a new account can cause your credit score to drop temporarily. As the average age of your open accounts grows, your score should increase.
Can I remortgage to consolidate debt if I have bad credit?
Possibly, yes.
If you’re struggling to manage your debt and are missing payments, consolidating everything into one payment can make things more manageable. Bear in mind, though, that missing mortgage payments could ultimately lead to your house being repossessed. Think carefully before securing debts against your home.
Bad credit might mean you need to use a specialist lender, rather than a high street bank, and you might have to pay a higher interest rate. Missed payments, defaults, and County Court Judgments stay on your credit file for six years, and the older they are, the smaller impact they will have.
Read our page on bad credit mortgages for more information.
What documents do I need?
We always need proof of ID and address, proof of income, and bank statements as a minimum.
When remortgaging for debt consolidation, we’ll ask for a credit report and your latest credit statements from each provider, too. This is so we can work out whether or not you will be better or worse off by consolidating the debt.
How can The Mortgage Store Chorley help with a remortgage for debt consolidation?
We will guide you through the calculations, illustrating in real terms the distinction between repaying your debt directly versus incorporating it into your mortgage. This analysis will be a crucial component of our recommendation to you. It’s up to us to educate you about why consolidation might not be the best thing to do and explain the other options.
We’ll chat with you about your debt, too. What exactly did you buy and why? Did you rack up debt quickly? Did you almost max out your credit card? These details help us see a pattern and can guide us in advising you on how to avoid debt in the future. The last thing we want to do is a financial reset, only to find you back in the same boat a few years later.
We also consider practical things like interest rates and how long it’ll take to pay off the debt.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
