Remortgage for Debt Consolidation

With the current cost-of-living crisis, many people are finding it increasingly difficult to manage multiple debts alongside their mortgage. As credit card and personal loan rates are often significantly higher than mortgage interest rates, more and more homeowners are exploring the option to remortgage for debt consolidation.

Debt consolidation can allow you to combine several existing debts all into one repayment – your mortgage. This can potentially lower your overall monthly outgoings and make your finances easier to manage.

But is this the best financial choice for you?

As with any financial decision, there are risks to consider, and it’s vital to understand the complete process before you make any decisions.

In this article, we’ll take you through exactly what a debt consolidation remortgage is, how debt consolidation works, and most importantly whether it could be a good idea for your circumstances. Let’s jump in.

What is a Debt Consolidation Mortgage?

A debt consolidation mortgage is when you increase your mortgage loan to pay off other existing debts. This can include credit cards, personal loans, or even car finance.

Instead of juggling the finances of multiple repayments each month, you can roll these debts into one – ‘consolidate’ –  your mortgage. This will leave you with one monthly payment to manage.

To achieve a debt consolidation, you will typically need to remortgage, either with your current lender or a new one, with the extra payments being secured against your property.

So, how would this look in practice?

The new mortgage amount will cover what you still owe on your property, plus the total of your outstanding debts. However, because mortgage products tend to have lower interest rates than unsecured loans, this option could potentially reduce your overall monthly payments.

For many homeowners, a debt consolidation remortgage is a valuable product that can help simplify their finances and potentially cut costs. That said, it’s important to remember that by consolidating debt into your mortgage, you’re turning unsecured debt into secured debt. This means that if you are unable to make your repayments – as agreed on your new mortgage agreement – then your home could be at risk.

At Boon Brokers, our dedicated mortgage advisers specialise in helping homeowners explore whether a debt consolidation remortgage is right for their circumstances. As a fee-free, whole-of-market mortgage broker, we can help you assess your current debts and review both the value and affordability of consolidating them into your mortgage.

If you’re interested in finding out whether a debt consolidation remortgage is the right choice for you, Boon Brokers can provide you with the clear and personalised guidance you need.

How do Debt Consolidation Mortgages Work?

One of the most common questions we get asked is: “How does credit consolidation work?”

Rather simply, a debt consolidation mortgage replaces your current mortgage with a new one that includes the balance of your existing debts.

This process is called remortgaging, and as outlined above, it can provide borrowers with the opportunity to combine debts such as credit cards, personal loans, or overdrafts into your home mortgage loan.

Crucially, to learn more about debt consolidation, it’s best practice to speak with a trusted mortgage adviser, like Boon Brokers. Our dedicated advisers can provide you with tailored guidance based on your personal financial profile, clearly explain your options, and compare deals across the market to help you find the most suitable lender.

Here we have provided a quick overview of how the debt consolidation process typically works:

• Assess and Evaluate Your Current Debts and Mortgage

Before making any decision, it is first vital to understand your current financial standing. Calculate how much you owe in total, including both your existing mortgage and unsecured debts.

• Check Your Home’s Equity

Your ability to remortgage will depend on how much equity you’ve built up. As a rule of thumb, the more equity you have, the more you may be able to borrow.

• Apply for a New Mortgage

It’s best to contact a trusted mortgage broker who can help you secure a deal tailored to your financial goals. If you’ve already assessed your finances and have sufficient equity, the next step is to submit a remortgage application. If approved, your new mortgage will clear both your existing balance and the selected debts you wish to consolidate.

• Repay Through Your Mortgage

Rather than managing several individual repayments, you’ll now be able to make a single monthly payment through your mortgage, at the agreed – and often lower – interest rate.

It’s important to note that while consolidating loans can reduce your monthly payments, these payments will match the repayment period of your mortgage term. As such, it’s essential to take a holistic view of the figures, as extending your repayment term could result in paying more interest overall – even if the monthly repayments are lower.

Is it a Good Idea to Consolidate Debt into a Mortgage?

The answer to whether it’s a good idea to consolidate debt into a mortgage will completely depend on your personal circumstances.

That being said, there are some clear advantages, as well as disadvantages, both of which need to be considered.

The Benefits of Debt Consolidation

• Lower Interest Rates

Mortgages will typically have far lower rates than credit cards and unsecured loans. As a result, consolidating debt into your mortgage can significantly reduce the interest you pay overall and help make your monthly payments more manageable.

• Simplified Finances

Instead of having to track and pay multiple different lenders – each with differing amounts, dates, and reasons – consolidating your debt can streamline your payments into a single monthly payment to one lender.

• Improved Cash Flow

By reducing your monthly outgoings, a debt consolidation mortgage can relieve financial pressure by giving you more breathing room. This extra flexibility could help you stay on top of essential expenses, build savings, or focus on other financial goals.

Notably, if you have a strong track record of managing repayments and a good credit score, debt consolidation loans for good credit can often offer more favourable terms. This can include better interest rates or more flexible terms.

However, there can be long-term implications and it’s important to assess the risks of a debt consolidation as well. Let’s take a look at the risks and disadvantages next.

What Are the Risks of a Debt Consolidation Remortgage?

All financial decisions can have drawbacks and debt consolidation is no exception. Choosing a debt consolidation remortgage comes with several risks that need careful consideration:

The Disadvantages of Debt Consolidation

• Your Home is Collateral

By remortgaging to consolidate your unsecured debts into your mortgage means that your debts will be secured against your property. As such, if you’re unable to keep up with agreed repayments, your home could ultimately be repossessed.

• Longer Repayment Period

While your monthly payments might go down, spreading the debt over a longer mortgage term can sometimes increase the total interest that you will have to pay, potentially making it more expensive in the long run.

• Less Flexibility

While the interest rates on credit cards and personal loans can be higher, they do also often offer more flexible repayment options. This can include payment holidays or interest-free periods. On the other hand, mortgage loans will tend to have a stricter criteria and limited flexibility.

• Early Repayment Charges (ERC)

Paying off your existing mortgage or unsecured debts early can trigger ERCs. To avoid unexpected costs or fees, it’s important to check both your current and new mortgage agreement, as they could reduce the overall benefit of a debt consolidation remortgage.

If you’re considering high risk debt consolidation loans, a mortgage-backed option may appear safer – but only if you’re confident in your ability to keep up with repayments. It’s essential to speak with a qualified mortgage adviser who can assess whether this route is suitable for your circumstances and long-term financial goals.

At Boon Brokers, our dedicated mortgage experts take a client-first approach to debt consolidation remortgages. As such, we don’t just look at what’s possible, we evaluate whether it’s the right option for your financial future.

By assessing your existing debts, current mortgage terms, and long-term affordability, we are able to provide you with clear, jargon-free advice on whether consolidating debt through your mortgage is in your best interest or whether alternative routes may be more suitable.

How Can I Remortgage a House to Pay Off Debts?

If debt consolidation has started to blink on your radar and you’re left asking, “can I remortgage to pay off debts?”, the answer is yes – provided you meet the lender’s criteria.

To remortgage a house to pay off debts, you’ll first need to apply for a new mortgage that includes both your existing mortgage balance and the total amount of debt you want to consolidate.

This process is known as debt consolidation remortgage, and can often be achieved with either your current lender or by switching to a new one. This decision will usually be guided by which lender can provide you with the best mortgage deal, tailored to your needs.

Similar to an ordinary mortgage criteria, lenders will typically assess your income, credit score, and general affordability. The only difference is that these assessments will now be placed alongside how much equity you already have in your current property.

The results, including how much you can borrow and agreed interest rate, will all depend on your personal financial profile, your application, and your chosen lender. Generally speaking, however, if you’ve built up enough equity, you may be eligible to borrow a higher amount and release the funds needed to pay off other debts.

Once approved, your new mortgage pays off your old mortgage and your chosen debts in full, leaving you with one payment that will cover it all.

It is important to note that Remortgaging is a process and will not happen instantaneously, rather, the process can take a few weeks.

Working with a trusted whole-of-market mortgage broker – like Boon Brokers – can help speed things up and ensure you find the most suitable lender for your circumstances.

What Are the Consequences Before Taking Out a Remortgage to Clear Debt?

While we have touched upon the risks of a debt consolidation remortgage, it’s crucial that you consider the long-term consequences – especially if you’re using loans to clear debt that were previously unsecured.

In short: the biggest consideration is that you’re now tying those debts to your home.

While this can reduce the interest rate and lower monthly outgoings, it can also increase the risk. Should your financial circumstances change – for any reason –  and you can’t keep up with repayments, your property could be repossessed as collateral.

The second main consideration is the length of time you’ll be repaying the debt. Most mortgages span decades, so although the rate may be lower, the cumulative interest could be higher over the long run. As such, if you’re planning additional borrowing on a mortgage to clear debt, be sure you understand the full financial impact, not just the initial monthly savings.

While a debt consolidation remortgage can provide a host of benefits and help manage your finances more accurately, it is a product that is best suited to those who have long-term financial stability and are confident in their ability to maintain regular repayments over time.

What Credit Score Do You Need for a Debt Consolidation Mortgage?

Two common concerns that we often hear are: “Does debt consolidation hurt your credit score?”, and “Can I get a debt consolidation mortgage with bad credit?”

While there is no universal credit score requirement for a debt consolidation mortgage, lenders will look favourably on borrowers with a consistently stable financial history.

As a general rule; the higher your credit score, the more competitive your remortgage options are likely to be. That said, you may still be able to qualify for a debt consolidation remortgage,  even if your credit score is low.

During your application, lenders will assess both your credit score and your recent repayment history. In the case that you’ve missed payments on existing debts, this can lower your credit score and reduce the range of lenders willing to offer you a mortgage.

In some cases, a bad credit score may limit you to specialist lenders who accommodate applicants with adverse credit. However, even with more flexible specialist lenders, you may find your offers will be at higher interest rates to reflect the increased risk.

More severe credit issues such as defaults or County Court Judgments (CCJs) can make obtaining a mainstream mortgage more challenging. Most lenders will decline applications with recent defaults or CCJs, especially if they occurred within the past 12 months.

Every mortgage application that you submit will involve the lender completing a hard credit check, which can temporarily lower your score. That’s why it’s always advisable to speak to a whole-of-market mortgage broker, who can assess your eligibility and match you with suitable lenders without unnecessary applications.

What Do I Need to Provide for a Debt Consolidation Mortgage?

Applying for a debt consolidation mortgage follows many of the same steps as a standard remortgage, but with a greater focus on affordability and financial credit.

If you’re working with a mortgage broker like Boon Brokers, we will ask you to complete a quick and easy Fact Find. This is a simple questionnaire that will cover your income, outgoings, debt levels, and the amount you wish to consolidate.

This simple step helps your dedicated adviser build a full picture of your financial situation.

Based on this, they will then recommend a lender that fits your specific needs, balancing cost, flexibility, and likelihood of approval. While they’ll usually suggest the cheapest product(s) available, based on your requirements, they can also recommend a slightly more expensive deal if it better suits your circumstances.

If working directly with your chosen lender, they will likely ask for the same documentation, including: payslips or tax returns, bank statements, an overview of your existing debts, and details of your current mortgage. In addition, you will also be required to provide an updated property valuation.

Most importantly, you’ll need to demonstrate on your application that the new monthly mortgage payment is affordable alongside your other expenses. This assessment helps lenders ensure the remortgage won’t put additional strain on your finances.

As a fee-free mortgage broker, Boon Brokers can help support you through every stage of your mortgage application. This includes explaining all and each requirement clearly, helping you gather the right documents to make your application as smooth and successful as possible.

Where Can I Get a Debt Consolidation Mortgage?

If you’ve been searching online and are asking, “Where can I get a consolidation loan?”, the best first step to take is to speak with a qualified mortgage adviser.

Simply, a debt consolidation mortgage can be arranged through your current lender, a new lender, or by working with a mortgage broker.

Having a qualified and trusted mortgage broker in your corner can help you navigate all the available options, specific to your case, highlighting what would be suitable and which offers may not be in your best interest.

Speak to a Mortgage Adviser

Choosing to remortgage for debt consolidation is a big financial decision – and one that works best with expert guidance.

Working with a qualified mortgage adviser can help walk you through all the pros and cons, help you access exclusive deals, and ensure the solution suits your financial circumstances.

At Boon Brokers, we offer fee-free, whole-of-market advice tailored to your needs. Whether you’re looking to simplify your debt repayments or improve your monthly cash flow, our dedicated mortgage advisers will help you understand your options and secure the right mortgage product for you.

Contact Boon Brokers today for professional guidance on consolidating your remortgage and place your financial wellbeing first.