What is debt consolidation?

Debt consolidation is the process of merging multiple debts into one. The reason for doing this is to make your debt easier to manage, and it often reduces the monthly outgoings as well. Your existing debts could be unpaid credit cards, loans, or anything else you owe money on. Having to manage multiple monthly bills can be complicated and expensive, so by consolidating your debts you can shift the focus onto a single monthly payment.

Mortgages will offer far lower interest rates than credit cards and an improvement on personal loan rates, that doesn’t necessarily mean that a debt consolidation remortgage will save you money. This is because you’re more likely to be paying off your mortgage for a longer period than your other debts, so as a result you will be more likely to pay much more in interest.

What debts can I consolidate when remortgaging? 

Deciding to remortgage to consolidate debts means that you are able to consolidate personal loans, credit cards, store card debt and many other forms of unsecured debt. How you manage to pay off debt is flexible to the options available to you.

Ways to remortgage for debt consolidation

This can be done in one of two ways, be either:

  • a complete remortgage or
  • a second charge loan is taken out to the value of the home equity
  • complete remortgage would release equity in the home and provide you with a cash lump sum that can be used to consolidate debts. 

You could try to get a second charge loan which is a separate secured loan against the equity you currently have on your mortgage. A second charge loan would only be available with your current mortgage lender whereas a full remortgage opens up the market.

Do I have to remortgage with my current lender if I want to consolidate debt?

You don’t have to get a remortgage with your current lender but it’s always worth comparing their rates too. If a different lender has a remortgage product that is cheaper or has better, more flexible terms, you may be able to switch while increasing the amount you borrow to settle other debts.

Do you have enough equity to remortgage?

Aside from your credit score, the mortgage provider will calculate your Loan to Value (LTV) ratio. This is an assessment used on any secured loan to work out how much of a risk you are based on the loan value. The lower the LTV the better, with many mortgage providers refusing to award mortgages to those with an LTV above 80-85%.

Is it harder to consolidate debts with a mortgage if you have bad credit?

If your credit rating is low or you have severe adverse credit that’s recent, getting a mortgage with a lower interest rate to consolidate those debts can be more difficult as most lenders will view you as a high-risk borrower, this is where we can help as we have access to specialist lenders that are not available on the high street.

A tip is to calculate your new repayments with a hypothetical lender vs your current repayments with your creditors to compare whether a remortgage could be cheaper or not.

While having one repayment can be appealing, it might be more difficult to qualify for mortgages with lower interest rates and in some circumstances, your new loan repayment could end up being more expensive.

The amount of equity you own in your property will affect your ability to get a remortgage with bad credit and usually, the more equity you have, the higher the maximum loan and the lower the interest rate. That’s not always a given though because every lender has their remortgage products and terms and conditions.

The important thing to remember is that there are lenders in the UK that are happy to lend to borrowers with bad credit