Remortgage for Debt Consolidation

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There are many reasons you might consider remortgaging your property. Perhaps you want to secure a better rate, are coming to the end of your existing rate, or wish to borrow more money against your home. Whatever the reason, remortgaging is a common and relatively straightforward experience.

Remortgaging is when a borrower moves the mortgage on their existing property from one lender to another, switching the old mortgage with the new. A mortgage is often the largest financial commitment someone may have covering many years. But just like how you might shop around for better deals on your electricity, you can also shop around for alternative mortgage deals to better suit your ever-changing personal circumstance.

Can I Remortgage For Debt Consolidation?

Debt consolidation can come in many different shapes and sizes. Defined as an early debt mitigation strategy whereby people merge multiple debts – including overdrafts, loans, and credit cards – into a single loan to help simplify repayments, debt consolidation can help to reduce stress of multiple monthly outgoings.

As an example, someone may take out a loan worth £200 to pay off two different loans of £100. This way, the borrower is only required to make one monthly repayment rather than two, with potentially, a better interest rate.

Two popular methods of consolidation are getting a debt consolidation loan (a type of personal loan), or opening a balance transfer credit card to consolidate credit card debts. But there is an alternative to these options.

Remortgaging your home for debt consolidation is a possible financial solution for some.

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How Does Remortgaging For Debt Consolidation Work?

Depending on your eligibility, you might be able to remortgage for debt consolidation. This is when a property owner with an existing mortgage decides to release equity in their home by taking out a new, larger mortgage or secured loan. Using the equity in the home, the owner can then pay off other debts, which ultimately makes the remortgage deal bigger.

Something to bear in mind with remortgaging for debt consolidation is that you may not be able to go down this route if you have a poor credit score. Eligibility can vary from lender to lender, so finding the right lender and route for you is key.

Debt consolidation in this instance could be a good option for those looking to consolidate a significant amount of debt, as usually, a remortgage will allow you to increase your borrowing to a larger extent than a further advance would.

Ways To Remortgage For Debt Consolidation?

Debt consolidation remortgaging can be down in two ways – either by finding a cheaper deal which reduces your monthly mortgage payment, or by releasing equity in a lump sum. Both of these options provide you with additional funding to cover the costs of your other debts and can be a great help during a period of financial insecurity.

Remortgage To A Cheaper Deal

By reducing your monthly mortgage payments under a cheaper deal, the borrower is able to access freed up money which can be put towards paying off debts. This is an ideal option as it would allow someone to pay off said debts in a regular, monthly fashion, removing the worry of how to fund recurring repayments.

Yet it is important to note that the savings might not be significant enough to completely cover or clear any existing debts. Depending on the difference in price between your former mortgage deal and your present one, the money saved by remortgaging may not even dent your remaining debts, let alone be a viable solution. Careful consideration as to how much money you can save by remortgaging is therefore needed when looking to pursue this option.

Remortgage To Release Equity

The second option is to remortgage your home and in doing so, release equity in a lump sum to pay off your debts. Rather than paying out on credit card bills and loan repayments on a monthly basis, this would allow you to solely focus on one mortgage repayment. This option may also make your monthly outgoings much lower.

However, remortgaging to release equity will require a larger mortgage to be taken out as well as the potential demand of significant associated costs. While it is likely you’ll save on monthly repayments, this option ultimately spreads your debt out over the length of your mortgage, possibly costing you more in the long run.

Is It A Good Idea To Remortgage To Pay Off Debt?

Everyone has different personal circumstances and financial situations in life. Determining whether it is a good idea to remortgage for debt consolidation is not as simple as a yes or no answer. For some, it might be advantageous to opt for an unsecured loan or an alternative debt solution depending on the type of risk.

Here, we’ll run through some general pros and cons of remortgaging for debts to offer guidance as to whether it’s right for you.

Advantages Of Remortgaging For Debt Consolidation

Accessibility – approval for a remortgage is often easier than that of an initial mortgage when using your current provider.
Easy to manage – by mixing all your debts into one monthly repayment, it is a lot easier to stay on top of.
Potential to save money – there is the potential to save money by taking advantage of the market. Opting for a better rate than your existing mortgage is a great benefit of remortgaging.

Disadvantages Of Remortgaging For Debt Consolidation

Bigger mortgage repayments – remortgaging will almost always increase the period of time it takes to repay and consequently own the property due to the bigger mortgage size.
Debt secured against your home – you are putting your home on the line as equity, meaning that if you fail to uphold payments, your home may be repossessed.
Additional fees – if you decide to switch lenders, you may be subject to other fees and expenses similar to an early repayment charge (but this is always dependent on the lender and company).

Can I Remortgage If I’m In Debt?

If you have outstanding debt and are wanting to remortgage, you might be concerned that this will negatively affect your chances. However, fear not, you won’t be automatically ruled out because of this. The main thing that lenders want to see is that you are financial reliable and responsible. Therefore if you can prove that you have been keeping up to date with your repayments and managing you debt to a satisfactory standard, then your chances of being accepted for a mortgage will increase. It is certainly worth applying for a remortgage even if you’re in debt.

How Do I Apply For A Debt Consolidation Remortgage?

Remortgaging is pretty easy once you’ve found a new deal to apply for. To apply for a debt consolidation remortgage, you will initially need proof that you can cover repayments throughout your plan. Typically, proof will be based on your level of income which may also impact the amount you’ll be able to borrow from lenders. The more income and equity in your home, the better, as this will open up the number of lenders available to borrow from due to your impression as a responsible borrower.

Factors that can impact your remortgaging eligibility include:

The property type
Your level of equity
Your credit history
Your age