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Should I Remortgage to Consolidate Debt?

Should homeowners consider remortgaging to consolidate debt? Read for advice from Consolidation Express.
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Many people know that remortgaging can lead to securing a better deal, but did you know it can help you to pay off debts too? When you remortgage for debt consolidation, it clears your outstanding debts.

Remortgaging might seem like a simple solution if borrowing money has left you in financial difficulty, but it is important to carefully weigh up all the pros and cons before deciding whether consolidating debt through remortgaging is the right choice for you.

What is a Debt Consolidation Mortgage?

In short, a debt consolidation mortgage is one that allows you to consolidate all your debts into one loan. This can prove helpful if you have multiple debts with different repayment terms, as it can potentially help you save money on interest and simplify your monthly repayments.

However, there are a few things to consider before deciding whether you should remortgage for Debt Consolidation.

You not only need to check that your current financial situation would allow you to comfortably make the higher repayments that come with further borrowing, but you also need to compare a consolidation mortgage with the interest rates of your existing debts. Doing so means you can make sure that consolidating will save you money in the long run, helping you avoid any potential risks involved in consolidating your debts in this way.

How Does a Debt Consolidation Mortgage Work?

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Debt Consolidation remortgages work by using the equity in your home as collateral for a new loan, with the amount of money you are eligible to borrow depending on the value of your home and the amount of equity you have accumulated.

Once you have been approved for the secured debt, the borrowed funds can be used to pay off your outstanding debts. You will then make the repayments on the consolidation mortgage, which will typically have a lower interest rate than your existing debts. Essentially, you will be saving money each month by only having to pay your mortgage instead of credit card bills and loan repayments.

Is a Debt Consolidation Mortgage a Secured Loan?

Also known as secured homeowner loans, secured loans require collateral to borrow. In the case of remortgaging, your home will be used as collateral for the loan, which means that if you default on the loan, your lender could foreclose on your property (i.e., you could be made to sell your home to clear your debt). For this reason, it is important to make sure that you are comfortable with the risks involved before you remortgage for Debt Consolidation.

To be accepted for a secured loan, the value of the homeowner’s property must be greater than the amount they still owe. Bear in mind though that having equity to offer as security does not mean you are automatically accepted for a remortgage – in fact, each lender has their own borrowing criteria which dictates the percentage of equity you must have.

However, acceptance rates are much higher for a secured loan than an unsecured personal loan, making it a more feasible option – particularly for those with poor credit ratings.

The Benefits of a Debt Consolidation Remortgage

There are several benefits to remortgaging to consolidate your debts:

1. You may save money on interest

One of the main advantages is that you may be able to save money on interest by consolidating into a loan with a lower interest rate. This can help you reduce the amount of money you owe over time and may make it easier to manage your debts.

2. You may be able to reduce your monthly debt repayments

You could reduce your monthly payment as a mortgage is paid off over a predetermined time, which is typically much longer than a personal loan or credit card debt. As a result, spreading debt over such a long period reduces monthly payments.

3. You would have less creditors to deal with

Another advantage of remortgaging is that it can simplify your monthly repayments. Rather than making multiple payments to different creditors each month, you will only have to make one payment on your consolidation mortgage. This can make it easier to stay on top of your debts, as well as helping you avoid late fees and other penalties.

The Risks of a Debt Consolidation Mortgage

As with any type of loan, there are risks associated with remortgaging for debt consolidation. Here are some:

1. Your property will be used as collateral for the loan

Consolidating your debts by remortgaging could means that your mortgage provider could foreclose your home if you fail to keep up with the monthly outgoings. This makes you extra vulnerable to any unforeseen financial difficulties, such as unexpected unemployment.

2. It could increase the total amount of money you owe over time

Depending on the interest rate you are offered, you could end up repaying more than you originally planned to. This is because you will be paying interest on the entire loan balance for the life of the loan, which could easily lead to a situation where you are paying more money in interest than you would have if you had kept your existing debts separate. So, while your monthly payments may be lower, you could end up paying more in the long run.

3. There are likely to be additional fees involved

Interest rates are not the only fees involved. You may be hit with additional mortgage fees and expenses if you switch from your current mortgage. For instance, you may be charged an early termination fee if you want to switch contracts before your current one ends. You may also be required to pay product, legal, and valuation fees if you take out a new mortgage, so it is recommended to get professional advice from a mortgage broker to make a fully informed decision.

Can you Remortgage with Bad Credit?

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Yes, you can but it depends on the lender. Whether you apply with your current mortgage lender or another provider, your credit file will be checked to see if you are lending risk. Each lender has their own criteria on what is a poor credit score, but the poorer your credit history is though, the more difficult it will be to find a remortgaging deal. You may still be able to consolidate your debts, but the interest rates won’t be as favourable, making remortgaging a less beneficial option for you.

If you are looking to remortgage with a bad credit score, it is worth taking steps to improve your credit rating before you apply. A specialist lending broker can help by explaining which lenders are most likely to accept your application, narrowing down the lenders to approach. This is vital as multiple failed mortgage applications can harm your credit score further.

Which Mortgage Providers allow Debt Consolidation?

Mortgages of this type are available through a bank, building society, or online mortgage lenders. Below is a range of lenders who offer consolidation loan mortgages:

  • Virgin Money
  • HSBC
  • Santander
  • Lloyds
  • Barclays
  • Halifax
  • Metrobank
  • TSB
  • Post Office
  • Co-Operative
  • Royal Bank of Scotland

Comparing lenders’ terms and conditions can be complicated and time-consuming, but there are mortgage advisors and websites to help you find a better mortgage deal than with your current mortgage provider.

Should I Remortgage to pay off or Consolidate Debts?

As already mentioned, it is important to weigh the pros and cons before deciding whether you should remortgage to pay off or consolidate debts.

On the plus side, remortgaging can help you to consolidate your debts into one monthly payment, which can make it easier to manage your finances. Additionally, you may be able to secure a lower interest rate on your new mortgage, which could save you money in the long run.

On the downside, remortgaging will add more years onto your mortgage term, meaning you will end up paying more interest overall. You could also be putting your home at risk of foreclosure if you miss any mortgage payments.

As such, it is important to think carefully before deciding whether a debt consolidation mortgage is the best option for your personal circumstances.

Can you get a Mortgage after Debt Consolidation?

In short, yes, but there are a few things you will need to keep in mind. First and foremost, your credit score will likely take a hit after consolidating your debts, as the process of taking out a new loan can temporarily lower your score. However, if you make your payments on time and keep your balances low, your score should recover relatively quickly.

Additionally, it is important to remember that mortgage lenders typically require a minimum credit score to qualify for a loan, so if your score is already on the borderline, consolidating your debts may push you below the threshold. In that case, you may need to wait a few months for your score to rebound before applying for a mortgage.

Ultimately though, consolidating your debts can be a helpful step in getting approved for a mortgage – as long as you understand how the process may impact your credit score.

For more bespoke advice you should contact a mortgage advisor.

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How Consolidation Express can help

To find out if you qualify for debt consolidation with Consolidation Express, please complete our online application form today.

Apply Now
An advisor pointing to a screen displaying Rep APR.

APRs from 5.8% to 89.9%

We are a broker, not a lender.

Unsecured Loan Representative 69.9% APR

Borrowing £7,500 over 36 months, repaying £502 per month, total repayable £18,083. Total cost of credit £10,583. Interest rate 69.9% (variable). The lenders on our panel offer loans for 12-60 months, with rates from 5.8% APR to 89.9% APR. The Representative Example is based on all loans paid out by lenders between 19th Apr 2022 and 23rd Dec 2022.

Secured Representative 11.7% APR

If you choose to add fees to the loan: Assumed borrowing of £25,000 over 120 months, plus a broker fee of £2,500 and a lender fee of £250 would result in monthly repayments of £345.55, the borrowing rate is 8.6% (variable), the APRC is 11.7% (variable), total charge for credit £16,466.00 and the total amount payable £41,466.00. You can opt to pay the lender and/or broker fees upfront, your adviser will discuss these options with you.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it. All rates vary subject to loan amount, loan type and status. Repaying your debt over a longer period of time may increase the amount you pay.

Further reading

What are the Different Kinds of Unsecured Loans?

Understand what an unsecured loan is, and how best to use the different kinds of unsecured loans in 2023.

What are the Different Types of Secured Loans?

With so many different types of loans available, it can be difficult to know which is right for you. For more information on secured loans, read this expert article.

Persistent Debt – What Does it Mean for Your Credit?

Persistent debt can affect your credit rating for a significant time period. Read to find out more.