Remortgage for debt consolidation

If you remortgage for debt consolidation, you’re either increasing your mortgage or switching to a new one - and using the money to pay off other debts.

You’ll repay everything through your mortgage instead of having lots of separate payments.

This can help you by:

Reducing your monthly outgoings

Mortgages often have lower interest rates than other types of borrowing, so your monthly repayments might feel more manageable.

Combining everything into one payment

If you have multiple balances, interest rates and payment dates to think about, keeping up with your debts can get quite overwhelming.

So consolidating debt into a single payment can make managing your money less stressful.

Helping you budget better

If you find it hard to manage your debts, you run the risk of racking up further debt.

But you might have better oversight of your money if you only have the one debt repayment to think about.

Use our budget planner to manage your spending, work out where you can save money and free up cash for essential expenses.

You may be able to consolidate most types of unsecured debt into your mortgage, such as:

• credit cards
• personal loans
• store cards
• overdrafts

Lenders won’t usually allow you to remortgage specifically to pay off priority debts, such as council tax or energy bills.

You risk losing your home

Many of the debts involved, such as credit cards and overdrafts, will be unsecured, so they aren’t tied to a specific asset.

But if you’re moving these onto your mortgage, they become secured against your property.

So you could lose your home if you fall behind on payments.

You might pay more overall

Even if the interest rate is lower, spreading the debt over a longer time could cost you more in the long run.

It reduces the equity in your home

When you borrow more on your mortgage to consolidate debt, it reduces the equity you have in your home.

Equity is the difference between what your home is worth and how much you still owe on your mortgage.

So if you increase your mortgage to pay off other debts, you’ll own less of your home until the additional amount is paid off.

That could cause issues further down the line, particularly if you want to move house, remortgage in the future or release equity.

Clearing your debt could take longer

Mortgages are usually repaid over a long period, often 20 to 30 years.

So even though you might have lower monthly repayments than you did before consolidating your debts, it could end up taking much longer to pay them off - possibly decades instead of years.

That means you could also end up paying more in interest in the long run.

You could have to pay extra fees and charges

You may have to pay early repayment fees on your current mortgage or set-up costs with a new one.

A remortgage with debt consolidation is usually seen as a last resort.

There are other, and possibly more suitable, debt solutions that can write off some or all of what you owe.

Alternatively, a debt management plan - an informal agreement with your creditors to pay off your debts at a rate you can afford - could be a way to lower your monthly payments.

You might also be able to get breathing space, which offers you short-term relief (60 days) so you have time to get advice and find a longer-term solution.

The best solution depends on your individual situation, including: 

• your income
• assets
• the types of debt you have

So it’s worth considering other, more affordable and less long-term options before making any big financial decisions.