Debt Consolidation Remortgage: Remortgage to Pay Off Debt

It is possible to consolidate debt by remortgaging. Essentially, you remortgage your property with a lender to release equity and raise money. You then use this money to pay off unsecured debts.

Instead of multiple unsecured debts, you have a single monthly payment that you make to the lender. This payment is made up of a mortgage repayment and interest.

Debt consolidation can help you clear debts, save yourself stress and organise your finances. However, it’s important to note that you could end up paying more overall with a debt consolidation remortgage, than if you had continued to manage your unsecured debts, as the mortgage will be spread over a longer term – i.e. you would be paying interest for longer. Find out how long it takes to remortgage.

Remortgaging is when you switch to a new product with a new lender on a property you already own. You can remortgage from 6 months after your name went onto the title deeds of your property.

If you currently have a mortgage secured on your property and you’re approaching the end of your introductory rate period, you can start to arrange your remortgage up to 6 months in advance of the end of this period - or sooner if you’re on a variable. Find out how to remortgage and what the best remortgage rates are available to you.

The amount you can borrow when you remortgage will depend on your affordability, the value of your property and the equity you have in your home. Most lenders also stipulate that you must remortgage for at least £25,000. Read our mortgage deposit guide to undertstand more about how LTV affect your mortgage rates.

A remortgage can help you consolidate the following types of unsecured debt:

• Credit cards
• Store cards
• Overdrafts
• Personal loans
• Car finance
• Money borrowed from family and friends on which you pay interest and there is an agreement in place

You can’t consolidate unsecured borrowing with 0% interest, such as a 0% credit card. This is because it wouldn’t make financial sense to consolidate these interest-free debts onto a mortgage on which you would pay interest.

It is possible to get a debt consolidation remortgage or loan when you’ve got bad credit due to missed payments or CCJs (county court judgements). What’s available to you will depend on your individual situation. It is helpful to know your credit score and be able to provide this information to your mortgage broker.

Our team have access to specialist lenders that don’t take into consideration your credit history when assessing your application. These lenders underwrite on a manual basis and look at your unique position.

Find out more from one of our expert mortgage advisers about how to remortgage with bad credit at: 0330 433 2927.

If you already have a mortgage on your property, you’ll need to remortgage with additional borrowing which means taking out a mortgage for an amount greater than your remaining mortgage balance - also known as a "capital raising mortgage". This allows you to release some of the equity held in your home and convert that to money. The new mortgage takes the place of your existing mortgage. You can then use the excess money from the remortgage to pay off your unsecured borrowing and consolidate your debt.

If your property is unencumbered – i.e. you don’t have an existing mortgage on your property - you can typically remortgage at up to 85% LTV (loan-to-value) depending on your affordability. This means you could release up to 85% of the equity in your home. It is possible to remortgage at a higher LTV - 90% mortgage or even 95% mortgage - but only a handful of lenders will go to 90% or 95%.

Pros

• You could save yourself a lot of worry and stress by consolidating multiple unsecured debts into one monthly payment
• You could avoid penalties that would come from missing any unsecured debt payment deadlines like damages to your credit score or going into arrears
• It can make your finances simpler and easier to manage

Cons

• You could end up paying more overall because you would pay interest over a longer term
• You may be in debt for a longer period of time
• You would reduce the equity in your home by borrowing more on your mortgage
• You’re securing debt against your home, instead of having it as unsecured debt
• There could be some mortgage ERCs (early repayment charges) you might have to pay if:
  • You’re still in your introductory period on your fixed rate
  • You want to repay your unsecured borrowing early – e.g. within the 90 days settlement period

There isn’t one single best debt consolidation remortgage option. It all depends on your unique situation.

The options available to you will depend on:

• Your affordability – i.e. how much you can borrow based on your income
• The equity in your property – the more equity you have in your home, the more you may be able to release to raise money
• The value of your property – the higher the value of your home, the greater the amount you can borrow on it
• Your credit score – bad credit as a result of debt may limit your borrowing options

Bad credit or limited affordability may restrict the products and lenders available to you, but this doesn’t mean you won’t find a suitable option. At John Charcol, our mortgage advisers assess your situation and requirements, figure out what lenders and products are suitable and manage the entire remortgage process for you. We’ll find you the very best option for your circumstances. Read our Bad Credit Mortgage Guide.

Most lenders on the market will consider remortgaging for the purpose of debt consolidation, including but not limited to:

• HSBC
• Barclays
• Santander
• Halifax
• Skipton
• Bank of Ireland
• Virgin

However, if you have a particularly complex situation you may need to go to a specialist lender that carries out underwriting on a case-by-case basis, including but not limited to:

• Bluestone
• Together
• Kensington
• Pepper Money
• Precise
• The Mortgage Lender

You’ll likely need to use a mortgage broker like John Charcol to access these specialist lenders as they often require that each applicant comes through an intermediary.

Further Advance

You may be able to take out a further advance with your existing lender instead of a remortgage. Further advances can be a more cost-effective option if you’re still on your introductory rate and would face ERCs (early repayment charges) by remortgaging early as they allow you to borrow more while keeping your current mortgage. Your further advance rate may be different from your existing mortgage rate but they are both with the same lender.

Second Charge

A second charge may be a more suitable option if you existing lender can’t grant you a further advance and/or you face high ERCs which would make remortgaging more costly. With a second charge, you keep your existing mortgage (the first charge) on your home and take out a second mortgage (the second charge) on the property. You then have 2 charges on your property. These can often be at different rates and for different terms.

You can find out more information on further advances and second charges on our website or speaking to one of our advisers by calling: 0330 433 2927.

We’ll need you to provide us with some personal information so that we can make an informed decision as to whether debt consolidation is right for you and which option would work best – whether that’s a remortgage, further advance or second charge.

We’ll ask for basic information such as:

• Your personal details
• Your income
• Your expenditure
• Insight into your personal and future circumstances

Your adviser will also require some more detailed information regarding your debts, such as:

• The types of debts you currently have
• The amount of each debt
• Who each debt is with
• What the interest rate of each debt is and any promotional deals
• Whether there are any redemption costs and their amounts
• Your current monthly contributions/payments towards the debts
• How these debts built up – this is simply to help us make sure that any future borrowing is manageable

Finally, we’ll ask for the following documents:

• A bank statement for the last 3 months – all applicants must provide this
• A recent credit file – all applicants must provide this
• A recent credit card statement for all debts
• Loan statements for all debts
• Evidence of income such as last 3 months of payslips/or tax calculations and overviews – all applicants must provide this