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When you remortgage to pay off debts it means getting a new mortgage and clearing your outstanding debts at the same time to make your monthly outgoings more manageable. We explain what's involved and what you need to consider first.
Many people know one reason to remortgage is to secure a better deal. But did you know it’s possible to remortgage to pay off debts too?
There are two main ways to pay off your debts through remortgaging. You could either:
The first option would be ideal as you could use the money saved on your monthly mortgage repayments to pay off your debts each month.
However, the savings may not be significant enough to get on top off or clear your existing debts completely or quickly enough.
Alternatively then, remortgaging and in doing so releasing equity to pay off your debts could make your monthly outgoings much lower. It would mean that instead of paying out on credit card bills and loan repayments each month, you’ll just have your mortgage payment to cover instead.
But it’s not a decision to take lightly. It involves taking out a larger mortgage and there may be significant costs involved. And while you may save on your monthly repayments, by spreading your debt over the duration of your mortgage it may cost you more overall.
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
In order to remortgage to pay off debts, you take out a new mortgage on your current home which includes the outstanding value on the previous mortgage, plus the value of the equity you want to release. You can then use this money to settle your debts. Read more in our guide Is remortgaging to release equity right for you?
The idea is that by paying off debts which have high interest rates using a mortgage with a lower interest rate and by spreading them over a longer period, your monthly repayments will reduce, making them more manageable. But it means taking out a bigger mortgage, which you shouldn’t do lightly. And there are other potential costs and risks involved too which we explain in more detail below.
Some homeowners with debts may decide remortgaging to pay off debts may be a worthwhile option, for example if they:
There are lots of other factors to consider before remortgaging to pay off debt:
Get fee-free remortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
As well as remortgaging to pay off debt, there are numerous other reasons why you may choose to raise capital when you remortgage. These include funding major home improvements such as a home extension, a new kitchen or for other big costs like school fees.
Each lender will have its own criteria on the maximum they are prepared to lend in each situation. So the amount of equity you have in your home will be a key factor in whether you are able to remortgage to pay off debts.
Plus, you will be applying for a larger mortgage. This means you must satisfy the lender’s affordability checks so that they are satisfied that you can afford the repayments.
If you’re looking for a debt consolidation mortgage and don’t have a huge amount of equity in your property, you may wish to investigate a specialist lender. However, this may involve paying higher interest rates. So it’s a good idea to chat to a specialist lending broker who will go through this with you.
Your current mortgage lender may or may not allow further borrowing – this depends on your circumstances. If they do, check the costs and fees involved. You will also be increasing the size of your mortgage by doing this.
If you have debt and you’re applying for a mortgage, you may be worried that it will rule you out of being accepted. However, debt won’t stop you getting a mortgage automatically – it will depend on your circumstances. So it’s a good idea to speak to a mortgage broker.
When you apply for a mortgage, the lender will look at your credit file to get an idea of how well you manage debt.
If the lender sees that you have debts and if you are struggling to keep up with repayments this may make it less likely that you will be accepted. Or you may be offered a lower amount and at a worse interest rate. See our guide on Mortgages for Bad Credit
If you want to remortgage to pay off debts and you have a bad credit score, you may want to look at ways to improve your credit rating before applying. A specialist lending broker will also be able to help by explaining which lenders are most likely to accept your application.
Before going ahead with a remortgage to pay off debts, it’s worth investigating other alternatives. For example, could you shift the debt onto a balance transfer credit card to get a cheaper rate? You could take out a secured homeowner loan or an unsecured loan. It may be a good idea to take independent financial advice before going ahead so you’re fully informed about your options.
When you’re investigating whether remortgaging to pay off debts is right for you, it’s essential that you do your research. If you speak to a mortgage broker you will find out more about the process, about which lenders are most likely to accept your mortgage application as well as the costs involved.
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