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Can you remortgage to consolidate debt?

You can remortgage to consolidate debt by replacing your old mortgage with a new one – if you’re eligible. Remortgaging can help you to reduce your monthly mortgage repayments and free up some cash to clear your debts. An alternative option could be to pay off your debt by releasing a lump sum of cash from the equity in your property (the portion of the mortgage that you’ve paid off).

6 min read
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Can you consolidate credit card debt into mortgage?  

It is possible to consolidate credit card debt into a mortgage by either:

  • remortgaging (with your current lender or a new one) to pay off your credit card debt early
  • releasing equity in your current mortgage as a lump sum of cash to pay off your debt

Will debt consolidation affect my mortgage?  

Debt consolidation will affect your mortgage if you remortgage to clear your debts. When you remortgage, you essentially change the terms of your agreement – which may involve spreading smaller monthly repayments over a longer term, so you can afford to clear your other debts sooner. 

Another option is to borrow a lump sum by releasing equity from your property (the portion of the property you own outright). Again, this will lead to an increase in your monthly mortgage repayments or lengthen your mortgage term to make up the difference.  If you do this, you will have to arrange to repay your debt with the money you release from your property.

Tip: It’s important to weigh up the cost in either situation, otherwise you could end up further in debt.

Bear in mind, increasing the mortgage term will increase the total amount of interest you need to pay in total (even if the interest rate stays the same). You are also securing previously unsecured debt against your home. Meaning if you are unable to make the repayments, your home may be at risk of repossession.

Can I remortgage with credit card debt? 

Yes, you may be able to remortgage with credit card debt - without consolidating your debts first. Your eligibility depends on the lender’s and your individual circumstances.

Having credit card debt won’t necessarily mean lenders will turn you down for a remortgage application.

You might still be able to remortgage your house at a lower interest rate than you’re currently on. Though if you have poor credit or you’re near your credit card and overdraft limits, you’re likely to be charged higher rates, or be declined.

You’re more likely to be accepted for a remortgage (and at a lower interest rate), if you:

  • have used very little of your credit card balance (30% or less)
  • you have a good credit history - due to making all your credit card repayments on time and in full each month
  • your financial situation has changed for the better since you applied for your original mortgage

To see whether remortgaging will be beneficial or detrimental to your finances, you need to work out the total cost of your new mortgage and compare it to your current one. It only makes sense to remortgage if it’s going to save you money overall.

Is it a good idea to consolidate debt into a mortgage?  

Consolidating your debt into a mortgage is a big financial decision and you should consider the pros and cons carefully. It may be worth speaking to a mortgage adviser to get advice tailored to your specific situation.

Pros 

You’ll only have one monthly repayment to make

Making several monthly repayments to different creditors can be stressful and confusing. If you consolidate your debt into your mortgage, you’ll combine them into a single repayment plan. This might be more manageable for you and there could be less risk of you missing repayments as a result.

You may find it more affordable

Having several monthly repayments can be a huge drain on your resources. Consolidating them could mean that you’re paying a lower amount per month, which might be more affordable.

You could pay less interest

If you manage to find a mortgage with a particularly low interest rate, you may end up paying less. Just make sure you work out the total cost of your repayments because a lower interest rate doesn’t necessarily mean you pay less overall. How much you pay also depends on the length of your agreement too.

Cons 

Missing payments could put your home at risk

A mortgage is a secured loan, which means the property you’ve purchased acts as collateral. If you stop making repayments the mortgage lender could repossess your home to recover owed funds – though this is usually a last resort.

You may pay more interest overall

Even though mortgages are often offered at a lower interest rate than other forms of borrowing (like unsecured debt consolidation loans, personal loans and credit cards), you usually pay them over a much longer period of time, which means you end up paying more interest overall.

There may be early repayment charges involved

Lenders may charge you for making early repayments on your existing debts. Also, if you want remortgage, you could be charged a hefty early repayment fee by your current provider – so it’s best to check the terms and conditions first. 

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