Can You Remortgage to Pay off Debt?

The majority of life is now wrapped up in a variety of monthly repayments. Bills and subscriptions are mainstays, whereas unsecured debt like credit card repayments, bank loans or overdraft fees can amount to large proportions of your monthly outgoings. You may start to ask yourself, can you remortgage to pay off debt?

This blog post will fully explain the process of what a debt consolidation mortgage is, what it entails, its pros and cons and if it’s a good idea overall. Proper Advice can offer comprehensive and practical help in this decision-making process and give you all the tools to decide if this course of action is right for you.

What Remortgaging To Pay Off Debt Means

Deciding to remortgage to pay off debt means replacing your existing mortgage, or increasing the amount you borrow against your home, to repay other more unsecured debts like credit cards, loans or overdrafts. The process will see you taking out a new mortgage deal or raising additional funds on your current one, with that extra money being used to clear your other debts. This is often called a debt consolidation mortgage.

Several key terms are important to understand:

• Equity: The portion of your property you own outright. It’s the difference between your home’s market value and the outstanding mortgage balance. Lenders will use your equity to determine how much extra you can borrow.
• LTV (Loan-to-Value): The percentage of your property’s value you are borrowing. For debt consolidation, you have more lender options from 80% LTV and below. If the total mortgage balance after consolidating your debts ends up between 80% and 90% LTV, only certain lenders will allow this. The key point is that the LTV limit applies to the final borrowing figure once the debts have been added, not the amount you owed beforehand.
• Secured vs Unsecured Debt: A mortgage is secured debt, meaning it is tied to your property. Credit cards and personal loans are unsecured, meaning they are not backed by collateral. When you remortgage to pay off debt, you effectively turn unsecured debts into secured debt.
• Debt Consolidation Mortgage: A type of remortgage specifically arranged to combine multiple debts into one mortgage payment, often at a lower interest rate, although you are stretching the interest payable over a longer term.

Why People Remortgage To Consolidate Debt

If you have never been in this position, you may be wondering if it is a good idea to remortgage to pay off debt and why people would want to do it.

People often remortgage to consolidate debt for a mix of practical and financial reasons. High-interest credit cards can make it difficult to reduce balances, so rolling these into a mortgage can lower the overall interest rate payments.

Managing multiple monthly payments from loans, cards, and finance agreements can also be stressful, and consolidation simplifies this by combining everything into a single, predictable payment.

Beyond lower overall outgoings, remortgaging can make finances easier to manage, improve budgeting and provide better peace of mind. It can also lower your monthly commitments and, in some cases, actually improve your credit health by clearing high-interest or revolving debts.

Is Remortgaging To Pay Off Debt a Good Idea for You?

Pros

• Streamlines repayment plans
• Easier to manage your finances
• Increased peace of mind

Cons

• Your home will be at risk if you miss your mortgage payments
• Stretching interest out over a longer term, in most cases
• Potential early repayment charges if you break out of your current mortgage early
• Requires strong budgeting discipline to avoid debt recycling, as consolidating what you owe into your mortgage can make it easier to slip back into accumulating more debt

Helpful Checklist

• Do you have a steady income?
• Are you comfortable with the risks secured debt brings?
• Will the longer mortgage deal work with your plans?
• Do you have enough equity in the property to get started?

How To Remortgage To Pay Off Debt

A handy step-by-step process for debt consolidation using your mortgage.

1. Review your current mortgage and total debts
   Gather details on your remaining mortgage balance, interest rate, monthly payments and all existing debts (credit cards, loans, overdrafts, etc.)
2. Calculate available equity and affordability
   Work out your property’s value minus your existing mortgage to determine equity. Assess your income, expenses and repayment capacity, being sure to take into account any changes that might happen
3. Use a debt consolidation calculator
   Estimate potential savings and new repayment terms with this debt consolidation calculator tool as a useful way of quickly seeing if this plan of action is worth it
4. Research lender options
   Compare high-street lenders with specialist lenders who may offer more flexible criteria, depending on credit history and income
5. Double-check all fees involved
   Review valuation fees, arrangement fees, legal costs, broker fees and any early repayment charges on existing debts or mortgages
6. Prepare questions for a broker or mortgage advisor
   Note down queries about interest rates, terms, risks, long-term costs and eligibility to ensure you fully understand your options. Remember that this is not a decision to be taken lightly, and no question should be seen as too small

Next Steps and Practical Advice

If you are considering remortgaging to consolidate debt, the first step is to review your finances carefully. Take stock of your existing debts, interest rates, monthly payments and available equity in your home. Next, be sure to speak to a mortgage broker or financial advisor who can help you understand your options and identify suitable lenders or products. This is also the perfect time to evaluate alternatives to ensure remortgaging is the best solution for your situation.

Comparing different approaches can help you make a more informed decision and avoid unnecessary risks when deciding to remortgage to pay off debts. Once you have a clear picture of your finances and options, you can plan the next steps with confidence. For personalised guidance and support in finding the right debt consolidation solution, contact Proper Advice, where experts can provide tailored recommendations based on your circumstances.

FAQ’s

Can I Remortgage Just To Pay Off Credit Cards?

Yes, you can remortgage just to pay off your credit cards, but it will depend on certain criteria. This process is called debt consolidation and can lower your monthly outgoings but increase the length of time you pay on certain arrangements. This could mean lower immediate costs, with higher, long-term interest payments.

Will Remortgaging To Clear Debt Affect My Credit Score?

Like any loan, credit agreement or payment plan, deciding to remortgage to pay off debt will only negatively impact your credit score if payments are missed. If you can confidently maintain the arranged payment figures, you have nothing to worry about.

How Much Equity Do I Need for a Debt Consolidation Mortgage?

Minimum equity: 15–20%

• Most lenders need you to keep at least 15–20% equity
• You need to have no more than 90% LTV after the debts have been added to the mortgage, not before

Ideal equity: 25–40%

• More lenders available
• Better rates and more flexible borrowing

High equity: 40%+

• Strongest approval chances
• Lowest rates and highest debt consolidation limits

Example: You typically need enough equity to keep the new mortgage at or below 90% LTV. Before remortgaging, lenders will look at your current equity position: if your home is worth £300,000 and your existing mortgage is £240,000, you’re already at 80% LTV. After debt consolidation, the new total borrowing must still stay within the lender’s maximum, which is usually 85% to 90% LTV. For example, with a £300,000 property, the absolute ceiling at 90% LTV is £270,000. Your existing mortgage plus the debts you want to consolidate cannot exceed that amount. Staying within these limits is essential, as anything above 90% LTV is not acceptable for consolidation.

Can I Remortgage If I Have Bad Credit?

Yes, it’s possible to remortgage with bad credit. It is crucial in situations like this to contact experts, like the team here at Proper Advice, for comprehensive, correct and helpful information about the best course of action you can take.