What is remortgaging?
Remortgaging is the process of switching your existing mortgage deal for a new one (often with a new provider). It’s common practice for homeowners who are approaching the end of their existing deal. Once this deal expires, most mortgages automatically switch to the lender’s standard variable rate (SVR), which can go up or down in line with interest rates.
Why should I remortgage?
You might want to remortgage to:
• Get a better interest rate
• Find a deal that better suits your current circumstances
• Borrow money against your home to repay debts or make home improvements
What is equity?
Equity refers to the current market value of your property less any debts secured against it, such as your outstanding mortgage balance or a secured loan.
What is debt consolidation?
When you have multiple debts, each one will likely have a different due date, different interest rate, and a different balance – and it can be tough to keep track!
Debt consolidation lets you combine multiple debts into one affordable monthly payment. It aims to make your debts more manageable and could lower the amount you need to pay each month (although you may pay more interest overall). However, debt consolidation only works if you keep up with your new repayment and don’t rack up additional debts.
What is a second charge mortgage?
A second charge mortgage (also called a secured loan) works differently from remortgaging.
Instead of replacing your existing mortgage deal, you’ll be adding a new loan secured against your property on top of your existing mortgage.
Should I remortgage to consolidate my debt?
| Pros | Cons |
| Get lower, more manageable repayments | Securing debt against your home is a serious financial decision |
| Get a longer loan term with a lower interest rate | You may be paying back more interest over time |
| Reduce your monthly outgoings and manage your budget | Your home is at risk of repossession if you fail to keep up with repayments |
| Use your home's value to get on top of your debts | Reduces the amount of equity in your property |
What should I consider before remortgaging?
• How will this improve my situation?
• What will my new monthly repayment amount be?
• What will the interest rate be?
• Do I want a fixed or variable rate?
• What term length do I want?
• How much will I need to pay in fees?
Am I eligible to remortgage for debt consolidation?
If you own a home with a mortgage and are considering remortgaging with additional borrowing to consolidate your debts, your eligibility will depend on the lender you apply with and the amount of equity you have in your home.
Each lender has different criteria that they use to make an assessment, but their checks will usually include:
• An assessment of the equity in your home
• An affordability assessment
• Your employment status and income
• Your financial behaviour
Terms and conditions may also apply. Your current mortgage might not allow for further borrowing and there may be a charge for ending your current deal early (known as early repayment charges).
NEED TO KNOW: Mortgage affordability is typically set at approximately four times your annual income.
What is a further advance?
A further advance lets you borrow money from your existing mortgage lender without switching your current deal.
Depending on the terms of your agreement and your eligibility, you may be able to borrow anything from £10,000 to 80% of your property’s value.
An advance will provide immediate access to funds but will mean you have more to pay back on your mortgage in the long run.
Can I remortgage with bad credit?
Missed payments in the past, been declared bankrupt, or had a CCJ? You might have a bad credit score. While credit scores aren’t everything, they are a tool that lenders use to assess whether you’re likely to be a reliable borrower. A bad or poor credit score can indicate that you’ve had problems managing money in the past and so might pose more of a risk as a borrower.
It’s not impossible to remortgage and borrow additional funds if you have bad credit – especially true if you pass an affordability assessment and have equity in your home. To increase your chances, you might wish to work with a mortgage broker who has access to a panel of lenders or take some time to improve your credit score before applying.
Should I remortgage to pay off my credit card debt?
Credit card debt comes with some of the higher interest rates offered in the market, but remortgaging might not be the best choice if you’re looking to clear your card balance. While remortgaging with borrowing may be available at a lower rate of interest than your credit card, securing debts against your property is a serious financial commitment and could put your home at risk of repossession if you fail to keep up with your payments. Instead, you could consider switching to a 0% interest credit card or a card with a lower APR.
If you’re struggling with debt, you can access free financial advice and support from a professional debt specialist. Visit Money Wellness, StepChange, Citizens Advice, National Debtline, or Money Helper to find out more.
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