Remortgaging to Consolidate Debt: Is It Worth It? 

Remortgaging to pay off debts means that you take out a new mortgage with a different provider, which pays off your existing mortgage and other

• debts you may have, including:
• credit cards
• loans
• other personal debts

It essentially allows you to consolidate your debts by combining them into one.

Which could make them easier to manage because you’ll only have to make one monthly repayment instead of managing several different ones.

One big point to flag is that with remortgaging, you’re securing your debt against your home. So if you miss any repayments, your home could be at risk of getting repossessed.

So it’s essential to ensure you can afford the repayments before considering this as an option.

If you’re unsure, speak with an independent financial adviser or mortgage broker to get a better understanding of whether it’s the right move for you.

The amount of money you can borrow to pay off your debt by remortgaging depends on:

1) How much equity you have
If the amount of equity you have in your home affects how much you could borrow. Generally speaking, you can borrow more money if your home equity has increased in value.

2) Your income
Lenders look at your income to see if you can afford the new repayments

3) The value of your home
Lenders usually look at the value of your home compared to loan. Generally speaking, the higher the value of your property, the more you’re able to borrow

4) Your credit history
Your credit history gives lenders an idea of how well you manage paying back what you borrow. Oftentimes, having a good credit history and higher credit score can improve your chances of borrowing and help you access better deals.

Use our remortgage calculator to get an estimate.

Some of the benefits and disadvantages to consider include:

Reasons to use

• Lower interest rates: mortgage rates are usually cheaper than credit card interest rates
• Debt consolidation: paying off your debts with a single payment rather than having multiple payments going out
• More time to repay: when you remortgage you might have the option to spread repayments over a longer period of rime

Reasons to avoid

• Higher mortgage payments: your new mortgage payments could be higher than your existing mortgage
• Longer-term debt: you could be in debt for a longer period of time even if the interest is lower
• Housing risk: your home could be at risk if you don’t keep up with repayments

If you don’t think remortgaging to consolidate your debts is right for you there are other options to consider including:

1) Debt consolidation loan

A debt consolidation loan is an unsecured loan that combines all of your debts into one payment.

The interest rates on debt consolidation loans tend to be higher than mortgage rates however, they are often cheaper than the average credit card interest rate,

2) Balance transfer credit cards
Balance transfer credit cards often allow you to shift your credit card debt to a provider with a lower interest rate (some even offer 0%) for a set period of time.

This allows you to pay off your credit card debt at a cheaper rate, however this must be completed before the 0% interest period is over. After that your remaining balance will be charged at a higher rate.

It’s important to note that you’ll have to pay a one off fee for moving your credit card balance to a balance transfer credit card.

3) Equity release
Equity release allows you to borrow money against the value of your home without having to sell it and move out.

It’s only available to homeowners aged 55 and over.

It’s important to note that there are risks involved in using equity release and you’ll need to speak with a specialist equity release adviser or a mortgage broker.

Equity release could help you to access cash tied up in your home to cover large expenses or everyday costs if you decide to take smaller sums as regular income.

However, it’s important to be aware of the drawbacks before considering it.

Whether it’s right for you depends on your personal circumstances including your:

• age
• health
• financial circumstances
• equity release sum
• property type
• future plans

Some of the questions to ask yourself are:

• can you afford the interest payments?
• will equity release unlock the true value of your home vs selling on the property market?
• will access your funds early affect later life expenses such as retirement and elderly care?
• will you want to move home or downsize later?
  could your benefit entitlements be affected by using equity release?

You’ll need to speak with an equity release adviser or mortgage broker before you can apply for equity release to make sure it’s the right next step and doesn’t derail your finances.

If you’re not sure equity release is right for you, there are some other options to consider:

1. Downsize your property
Sell up and move to a smaller home that costs less.

You can then use the sale profits to fund what you need.

2. Retirement interest-only mortgages
A retirement interest-only mortgage could help if you’re struggling to afford your monthly mortgage repayments.

Each month you’ll pay the loan interest. The amount of money you borrow is only repaid when you sell your home, move to long-term care or pass away.

3. Cash in other assets
You could consider selling investments or using savings to access cash to pay for what you need.