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Is it possible to pay off debt with a mortgage, specifically, with the equity acquired from owning a home? This is a common question we receive from young homeowners. The short answer is yes, unsecured debt from loans and credit cards can be consolidated into manageable monthly mortgage payments.
However, it’s important to understand all the pros and cons before making that decision. In this helpful guide, we’ll discuss how consolidating debt into a mortgage works and if it’s the right option for you.
The interest rates on mortgages are usually much lower than the rates charged on unsecured borrowing such as a credit card. The reason for this is because mortgage debt is considered a secured debt. Since the debt in a mortgage is tied to an asset there’s less risk attached to it, so banks are able to attach lower interest rates to them. While exact figures vary, mortgages rates often sit around 4–7%, compared with 6–20% for personal loans, 20–35%+ for credit cards and 25–40%+ for many store cards.
Since mortgages run for a much longer time, the monthly payment on consolidated debt can be noticeably lower. This can ease financial pressure but might also mean paying more interest overall.
It’s also important to remember that once you’ve consolidated your unsecured debt into a mortgage, it then becomes part of your secured debt. While this is excellent for providing financial relief from the stress of managing payments on unsecured debt, failure to make mortgage payments can result in losing your property. It’s essential to understand the full scope before deciding if paying off your debt with your mortgage is in your best interests.
Using your mortgage to consolidate your debt can provide instant relief, as it can result in smaller monthly payments. However, while it reduces what you pay monthly, the debt is repaid over a much longer period, so the total amount you repay overall can end up being higher.
Before deciding if paying off your debt with your mortgage is right for you, we recommend using our debt consolidation calculator. This can provide you with a clearer picture on what your monthly savings will look like. It also allows you to compare current payments with a potential new one, understand long-term costs and get clarity before speaking to a mortgage advisor.
Debt consolidation can be helpful for many homeowners. We recommend homeowners with unsecured debt assess all their options, as sometimes consolidating debt into a mortgage might not be the best choice.
If your debts are relatively small or close to being paid off, then consolidating them into a long-term mortgage might not be the best option. It’s not recommended to stretch a small balance over 20-30 years as it can increase the total amount repaid.
You also need to think about your Loan‑to‑Value (LTV) ratio. If you’re already borrowing close to the maximum allowed against your property, lenders may offer fewer options and higher rates. In some cases, this can make debt consolidation unsuitable because the costs outweigh the benefits.
Without careful planning, you could end up turning short‑term unsecured debts into long‑term secured borrowing. This increases the risk because, if you’re unable to keep up with the repayments, your home could be at risk.
To understand how consolidating debt into a mortgage can affect your finances, here’s a real-life example from one of our clients:
The Starting Position
The homeowner had:
Alongside this, they had a combination of unsecured and secured debts totalling:
This meant their total monthly outgoings were:
£1,644 (mortgage) + £2,689 (debts) = £4,333 per month
Managing over £4,300 in monthly repayments was placing significant pressure on their household budget. The client chose to consolidate their debts into a new mortgage.
After completion:
All previous unsecured and secured debts were cleared in full.
Instead of paying £4,333 per month, the client now pays £2,483 per month. That’s a reduction in monthly outgoings of £1,850 per month.
In summary, can paying off debts with your mortgage save you money? Yes, it can, but keep in mind every financial situation is different. Consider all your options, such as the amount of unsecured debt and how much you will be able to save.
Contact the helpful team at Proper Advice to get straightforward advice and speak to real people who take the time to understand your full financial picture, goals and concerns. Fill out our contact form, give us a call on 01244 955 399 or email us at info@properadvice.co.uk.
Consolidating higher-interest debts into a lower rate mortgage can reduce what you pay each month and provide immediate financial relief. However, keep in mind you may end up paying more over a longer period of time.
It can lower your monthly outgoings, but since the debt becomes secured against your home, it may take longer to repay. This can increase the total amount of interest you pay over time. However, it can provide immediate relief for those struggling with managing payments from different creditors.
A debt consolidation calculator can give you a quick idea of how your payments might change. For a full picture tailored to your circumstances, it’s best to speak with a mortgage adviser before making any decisions.
Think carefully before securing other debts against your home. The overall cost of repayment of other debts might be more when added to your mortgage. Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.
