Our Top Tips for Debt Consolidation Remortgages in 2024

What is a debt consolidation remortgage?

Table of Contents

Can you remortgage to consolidate debts?

Best remortgage deals for debt consolidation

Pros and Cons of Debt Consolidation Remortgages

Debt Consolidation Mortgage FAQs:

Can I remortgage if I have bad credit?

Will my credit score be affected?

How much is too much debt for a mortgage?

What debts can’t I consolidate?

Did you know you can consolidate and pay off your existing debts in a single monthly payment? Debt consolidation remortgaging offers you the chance to do just that. Getting out of debt can be tricky, especially if you owe money in a few different places. Remortgaging enables you to pay off credit cards and loans by combining them into one repayment plan. Remortgaging your property can help free up extra finances and make your debts more manageable. There are a few things you need to know before making this decision – read on to find out more.

What Is A Debt Consolidation Remortgage?

Remortgaging is when you replace your current mortgage with one from a new lender, or one with different terms from the same lender. Remortgaging can help you take advantage of better interest rates, access equity in your property, or in this case, consolidate your debt. A debt consolidation remortgage means you refinance your existing mortgage to incorporate additional funds that you can use to pay off other debts. But is this the best way to clear debt and free up your finances?

Should You Remortgage To Pay Off Debts?

Remortgaging to pay off debts can reduce the interest you pay on the money you owe. It can also simplify your finances, because you only have one lump sum to pay off each month. You may get more favourable interest rates if you stick with your current mortgage lender, as you have already paid off a portion of your property.

For example, if you want to pay off a credit card debt of £10,000, this can be absorbed into your mortgage payments and spread over your entire mortgage term. Your mortgage could offer lower interest rates too, so you end up paying less. If you want to consolidate your debts and pay them off along with your mortgage, it’s best to take a look at what debt consolidation remortgage deals are available to you.

Best Remortgage Deals For Debt Consolidation

Before remortgaging your property, I strongly recommend doing some research first. Find out what remortgaging options are available to you, and take the time to select the deal that suits you best.

Consult With Your Current Mortgage Lender

First, find out what your current mortgage lender can offer you. They may offer you the best deals as you are already in a contract with them, and they would rather you didn’t take your mortgage elsewhere. You will have already built up some equity with the mortgage you have paid off so far.

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Look Into Other Remortgage Products

Sometimes, other lenders can offer a better deal than your current mortgage provider with better interest rates or even lower monthly payments. See what they have to offer and compare it with your current mortgage lender to see who comes out on top.

Ask For Expert Advice

You can get impartial advice by consulting with an independent mortgage broker. This can be a good way of getting a professional opinion on your current financial situation and helps you choose the solution that works best for you.

Pros and Cons of Debt Consolidation Remortgages

Consolidating your debts by remortgaging can sound like a no-brainer – why wouldn’t you want to save money, free up your finances and clear debt? But there are some important things you should be aware of first. Here are some pros and cons of debt consolidation remortgages.

Pro – Reduce Your Monthly Outgoings

Paying off debt can feel like a neverending nightmare, with everyone wanting a piece of your hard-earned cash. Making one simple monthly payment is a lot easier than keeping track of several individual repayments.

Pro – Pay Less Interest

Say, for example, you have an outstanding loan with an interest rate of 7%. You also have a couple of credit cards with an interest rate of 19% (ouch!). These combined interest rates mean that your money is getting lost to interest without touching the debts themselves. But you could add these debts to your mortgage, which is at a lower rate.

Pro – Helps You Budget More Effectively

Paying your debts as part of your mortgage means you just have one monthly payment. This can help you budget and manage your finances more effectively.

Con – It Will Take You Longer To Pay Off Debts

While your monthly outgoings are reduced, it will take you longer to pay off debts, this is because these payments are spread out over a longer period. While the interest rate on a mortgage is lower than on loans or credit cards, the total interest paid out could be higher.

Con – Your Property Could Be At Risk If You Miss Repayments

As with all mortgages, if you do not keep up with repayments, you could lose your property. Make sure your new monthly payments are affordable in the long term.

Con – The Equity In Your Property Is Reduced

That equity you have built up by paying off your current mortgage could be depleted by a remortgage with extra borrowing. This could affect your ability to make a profit if you sell the property in the future.

Debt Consolidation Remortgage FAQS

Can I Remortgage With Bad Credit?

Yes, you can – with a few caveats. A new mortgage lender will run a credit check to get an idea of how likely you are to default on the new mortgage, and your application may be refused. It’s worth trying though, as some lenders will still offer a remortgage.

Will my credit score be affected by a debt consolidation remortgage?

Your credit score could experience a temporary dip if you take out a debt consolidation remortgage, but keeping up with the monthly repayments will bring it back up. If you default on a debt consolidation remortgage, or remortgage several times to pay off debt, this will harm your credit score.

How Much Is Too Much Debt For A Mortgage?

This varies depending on each mortgage provider, but a debt-to-income ratio of 50% or more may make it hard for you to find a suitable remortgage deal. See the formula below for working this out.

DTI Ratio = Total Monthly Debt Payments / Gross Monthly Income

So for example, if you earn £3,000 a month and your debt repayments are £1,000 a month, your debt-to-income ratio is 33.33%.

What debts can’t I consolidate?

There are some debts that you can’t consolidate into a remortgage, including unsecured loans and hire purchase agreements with less than 12 months left for repayment. You also can’t pay off credit cards or store cards that are at 0% interest.