Anyone can be struck with financial problems and new financial burdens can lead to accumulating debts.

If you have found yourself with building debt that seems impossible to pay, odds are you have been considering debt consolidation. A debt consolidation mortgage allows you to combine your debts, which can often make it easier to manage repayments. But what is debt consolidation? and how could it help you?

How does remortgaging for debt consolidation work?

Debt consolidation with a remortgage means adding your debt to your mortgage balance, using some of your equity to pay off your debts. The benefit is potentially lowering your monthly debt repayments to be more manageable.

You remortgage, increase your mortgage balance and swallow up your debt within your mortgage. That means you’re paying the debt back over a longer period of time, could be paying less each month and possibly on a lower interest rate. However, before you jump on this, you need to consider that there are both positives and negatives. Being aware of both will allow you to make a completely informed decision.

What can I use it for?

A debt consolidation mortgage can be used to pay off different types of debt:

  • Personal Loans
  • Store Cards
  • Credit Cards
  • Overdrafts

Remortgaging can be a big decision which heavily impacts your financial situation and knowing whether you can afford to remortgage in the first place is extremely important.

Should I Remortgage to Pay Off My Debt?

Reasons you may be looking to remortgage to pay off debt are:

  • To lower the interest on current debt
  • To change monthly payment amounts
  • To make debt easier to manage and combine into one main payment

If your debt is in unsecured loans, the interest rates may be much higher than you could expect to be paying when remortgaging your property—having loans owed to multiple different companies may add stress to an already difficult financial situation, as you may be concerned about keeping up with all the different payments to separate places.

Lots of our clients have struggled with the worry of debt. It is stressful, especially when paying it off feels so out of reach. Often people add more debt to the equation because paying it off seems so far away.

We strongly believe in the emotional impact of mortgage broking, as well as the logical side. On paper it might not make sense to consolidate your debts into your mortgage, but if the emotional impact of that is huge, that can make it worthwhile.

Debt consolidation through your mortgage should be a life changing lesson. But not everyone learns that lesson. They put their debt into their mortgage and get back in the same situation two years later.

It should only be used once or twice. Lenders talk to each other – if you’ve already consolidated debts before, they won’t like it. So it should be considered an opportunity to change your spending habits.

What are the pros and cons of remortgaging for debt consolidation?

The big advantage is that you can reset your financial situation and possibly reduce the interest you’re paying. You will just have one monthly payment, which is always helpful.

A debt consolidation loan also makes your debt easier to understand and handle. Right now, you have probably got debt from various sources. You might have borrowed from a loan company and had debt collected on your credit card. With a debt consolidation mortgage, it’s all collected in one, simple-to-understand lump sum.

With all these different money loans that you’re paying back, there will be a collection of interest rates. Some might be lower while others will be quite high. If you take out a debt consolidation loan, you’ll only be paying one interest rate. This rate may be a lot lower than what you’re used to and easier to manage

The main risk is that you go on to get into more debt – and your mortgage is already more expensive. Consolidating again will keep increasing your mortgage balance, which isn’t good. You didn’t buy your home and build that equity to just spend it on credit card debt or loans.

It can also cost you more in the long term. A credit card or a loan does have a higher interest rate than a mortgage, but you could pay it off within three to four years. If you add it onto your mortgage over 25 years, you’ll be paying it back for much longer, costing you more in total.

A consolidation loan is an example of what’s referred to as secured debt. Essentially, this means you are tied down to paying the money back you owe per month. If you don’t make the payment on time, you could lose more than you bargained for. Your property could be repossessed, and some people even lose their homes.

As you can see, there is a lot of information to look at here. You need to think about the terms of the loan and who you’re borrowing it from before you make a decision.

What will a mortgage broker advise?

We will do all the calculations with you, to show you in real terms the difference between paying your debt back direct or adding it to the mortgage. That will form part 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 all the other possible options. But some people, just want to reset. They don’t want to see the balance each month.

But imagine the debt is a holiday and you’re still paying for that holiday 20 years later. Is it worth it for two weeks in the sun? We’ll talk to you about the debt – what did you buy and why? How were you feeling at the time? How quickly did you accumulate that debt? And how close to your credit card limit did you go? These are all things that show us a pattern, and will help us talk to you about avoiding debt in the future.

We blend the practical things like interest rates and how long the debt will take to repay, and also the emotional benefits of addressing the problem.

How do I apply for a debt consolidation remortgage?

To get a debt consolidation mortgage you should begin by speaking to a specialist mortgage broker about your situation, and we can help you decide whether this is the most appropriate option for you, and can then find you the best offer.

Hopefully you have a considerable difference between the value of your property and your current mortgage balance. Most lenders have apps or online banking where you can see what your mortgage balance is, but if not, I’d recommend getting a Checkmyfile report to confirm the balance.

To find out more about Checkmyfile click here

If you’ve got some debt, you want to have a no judgement conversation, get in touch with one of the team

0330 135 8047

Book Appointment here


DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action. 
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.