If you're managing multiple debts from different lenders, it can feel overwhelming.
Remortgaging to consolidate your debts is a popular option that could help simplify your finances and reduce your monthly outgoings.
It involves releasing a portion of the equity from your home and using that lump sum to pay off your outstanding debts. This leaves you with just one manageable monthly payment, which is your new, larger mortgage.
The key benefits
- Simplify your finances: Instead of juggling multiple payments to different lenders each month, you'll have just one single, clear payment to your mortgage lender.
- Lower your monthly outgoings: A remortgage typically offers a much lower interest rate than unsecured loans, personal loans, or credit cards. By consolidating your debts, you could significantly reduce your total monthly repayments.
- Save money on interest: Over time, the lower interest rate on your mortgage could mean you pay less in total interest compared to what you would have paid on your higher-rate debts.
A practical example of savings
Let’s look at a typical scenario to see how much you could save each month by consolidating your debts with a remortgage.
Before consolidation:
| Type | Balance | Term | Rate | Monthly Payment |
| Mortgage | £120,000 | 22 years | 4% | £685 |
| Loan 1 | £12,500 | 6 years | 15% | £265 |
| Loan 2 | £3,000 | 4 years | 17% | £87 |
| Credit Card | £5,000 | N/A | 22% | £92 |
| Total | £140,500 | £1,129 |
After consolidation:
| Type | Balance | Term | Rate | Monthly Payment |
| Mortgage | £140,500 | 22 years | 4% | £802 |
| Total | £140,500 | £802 |
In this example, consolidating your debts could lead to a monthly saving of £327!
Qualifying for a remortgage for debt consolidation
While the monthly savings can be very attractive, it is important to know that lenders will assess your application based on a number of factors. It is not just about having equity in your home; you also need to be an eligible borrower. We will help you understand the criteria lenders look at, including:
- Credit history: Lenders will review your credit report to see how you have managed your credit in the past.
- Income and affordability: The lender will need to be confident that you can comfortably afford the new, larger mortgage payment, and will assess your income and expenditure to ensure this is the case.
- Existing debt-to-income ratio: Before a remortgage is approved, a lender will assess your current debt load relative to your income to ensure the consolidated mortgage is manageable.
Potential risks and considerations
It’s crucial to understand all the potential risks before deciding to remortgage to consolidate debts.
- You could pay more interest in the long run. By securing short-term debts over a much longer term on your mortgage, you could end up paying more in total interest, even though your monthly payments are lower.
- Your home is at risk. By remortgaging, you are converting unsecured debt (like a credit card) into secured debt against your home. This means your property is at risk of repossession if you fail to keep up with your mortgage repayments.
- The risk of re-accruing debt. One of the biggest risks is that you pay off your old debts and then begin to build up new debt on the now-cleared credit cards or loans. It is important to have a plan in place to manage your finances responsibly moving forward.
What the process looks like
Navigating the process can feel daunting, but as your broker, we will be there to help you every step of the way.
- Free initial consultation: We will start with a detailed discussion about your financial situation, your goals, and what you would like to achieve.
- Lender and product search: Based on your needs, we will search the market to find the best lender and most suitable product for your circumstances.
- Application and valuation: Once we have found the right deal, we will submit the application on your behalf. The lender will then perform credit checks and arrange a valuation of your property.
- Completion: Once the offer is in place and all the legal work has been completed, the new mortgage will be put into place, and your old debts will be cleared.
Ready to find out your options?
Consolidating your debts is a major decision, and it’s vital to get it right. Our experts can help you assess your current situation and find out if a remortgage for debt consolidation could benefit you.
Book your free initial consultation to find out more.