Can I remortgage to pay off debt?

Why remortgage?

There are several reasons why people remortgage, such as to:

• Consolidate debt
• Make home improvements
• Get a lower interest rate
• Find a more suitable deal

What is remortgaging for debt consolidation?

Remortgaging for debt consolidation means switching your existing mortgage to a new one with additional borrowing and using the extra funds to pay off your debts. This type of mortgage deal is known as a ‘debt consolidation mortgage’, and it can sometimes involve changing lender.

Moving some or all your debt to a new mortgage may mean one monthly payment, one interest rate, and one lender. This could be more manageable than juggling multiple debts.

Adding debts to your mortgage could also mean paying them back over a longer period, which may result in lower monthly repayments, but it could cost more overall.

Is remortgaging to pay off debt a good idea?

Whether remortgaging to pay off debt is a good idea or not depends on your individual circumstances. Let’s look at some key advantages and disadvantages:

Advantages	Disadvantages
A debt consolidation mortgage could make it easier to budget.	It reduces the equity in your property.
You may be able to borrow a higher amount than with a personal loan.	The more you borrow, the higher your mortgage balance will be. If you fall behind on the repayments, your home could be repossessed, as a last resort.
You might be eligible for a lower interest rate than you’re currently paying.	Early repayment charges may apply if you end your current deal early. And there may be fees to set up a new mortgage.
You could reduce your monthly outgoings by spreading repayments over a longer period.	You may end up paying more in total if you pay the debt back over a longer time frame.

It’s important to speak to a qualified mortgage adviser before you decide whether to go ahead. They can review your circumstances and answer any questions.

Things to consider before taking out a remortgage to clear debt

As well as the pros and cons, also think about these questions:

• Will it improve my situation?
• What will my new monthly mortgage repayment be?
• What will the interest rate be?
• Do I want a fixed or variable rate?
• What mortgage length do I want?
• Are there any fees, and how much will they cost?
  
  

Am I eligible to remortgage for debt consolidation?

As with your original mortgage, your eligibility for a debt consolidation mortgage will depend on the lender’s criteria. This varies from one provider to another, but lenders will usually look at:

• The amount of equity in your home
• Your affordability based on income and outgoings
• Your employment status
• Your credit history

Note that mortgage affordability is typically set at approximately four times your annual income.

Can I remortgage to pay off debt with bad credit? 

It is possible to remortgage and borrow additional funds if you have bad credit – especially if you pass an affordability test and have equity in your home. But your options may be limited, and you could face higher interest rates. This is because the lender may question your ability to repay the loan based on your past financial behaviours.

To increase your chances, you might wish to work with a mortgage broker, like us, who can access a wide range of lenders. Or you could take some time to improve your credit score before applying.

Should I remortgage to pay off my credit card debt?

While mortgages tend to come with lower interest rates than credit cards, remortgaging isn’t always cost-effective. For example, it might not be worthwhile if you only have credit card debt, you owe a small amount, or the fees to set up a new mortgage outweigh the debt.

You could consider a balance transfer credit card instead. Bear in mind that balance transfer fees may apply, and the best rates tend to be offered to those with the highest credit scores.

Remortgaging could be a good option for you, but it depends on your individual circumstances. If you’re struggling to cope with debt, you may benefit from accessing free financial advice from a debt specialist, to help you decide on your next steps.

Visit Money Wellness, StepChange, Citizens Advice, National Debtline, or MoneyHelper to find out more.