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Are You Considering a Debt Consolidation Remortgage?

If you are thinking about taking out a remortgage for debt consolidation then you probably have a few questions, such as:

  • How do I get a remortgage? 
  • Is a remortgage right for me? 
  • Can I get a remortgage for debt consolidation with bad credit? 
  • How does remortgaging work exactly?
  • Don’t worry, we’ll cover all these questions and more.  

Getting a remortgage can bring with it some useful benefits, however it is an important decision that requires some careful consideration. Is a remortgage the right option for you? We’ll help you weigh up all the advantages and drawbacks and provide you with everything you need to move forward. 

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What Is a Debt Consolidation Remortgage?

A remortgage (also known as refinancing) is the process of switching your existing mortgage to a new one, either with your current lender, or with a new one. 

A debt consolidation remortgage is when you refinance and release equity in your home for the purpose of clearing some debts.  

You essentially pay off your current mortgage with funds from your new mortgage and you continue to use the same property as collateral.  

People choose to refinance for various reasons, including: 

  • To change the type of mortgage you have 

For example to switch from a variable to a fixed term mortgage. 

  • To obtain a better mortgage deal 

Such as improved terms, payments, or interest rate 

  • To borrow more 

You can borrow more money, using your home as security, and use those additional funds as you need to, including for the purpose of consolidating some debts. 

Case Study

Fixed Rate Relief: Client Saves £1.2K and Gains Payment Stability

New Fixed Mortgage Cuts Debt, Saves £1,270, Simplifies Life

Initial enquiry

The client was nearing the end of their fixed-rate mortgage period and faced moving onto the lender’s Standard Variable Rate (SVR) of 7.24%, which would significantly increase the monthly payments.
In addition to the mortgage, the customer was also repaying a high-interest secured loan and several unsecured debts.
The customer was seeking a solution that would:
  • Avoid the costly SVR by securing a better mortgage rate.
  • Consolidate both secured and unsecured debts.
  • Reduce total monthly outgoings.
  • Give peace of mind with fixed and predictable mortgage payments.
  • Free up surplus income to improve monthly cash flow.
Mortgage Type Property Value Balance Loan to Value Term Interest Rate  Payment Type Product Type Payment
Mortgage £480,000 £322,000 78% 21 Years 7.24% Repayment Standard Variable Rate £2,490
Secured Loan £50,000 21 Years 11.99% Repayment Standard Variable Rate £568
Unsecured debts (various) £7,721 Repayment £502
Total £379,721 £3,560
New Lending Property Value Balance Loan to Value Term Interest Rate  Payment Type Product Type Payment
Mortgage £480,000 £379,000 79% 21 Years 4.30% Repayment Fixed 5 years £2,290
Monthly Saving £1,270

The Challenge

The main challenge in this case was sourcing a lender willing to offer debt consolidation at a Loan-to-Value (LTV) of 79%, which is near the upper threshold for most lenders offering such solutions. Many providers have stricter criteria when it comes to consolidating both secured and unsecured debts at higher LTVs.
Additionally, the client’s employment status added complexity to the case. Working as an IT contractor on a day rate and contracting for the past 6 months. This posed potential affordability and income verification issues with traditional lenders who often require longer contracting histories or permanent employment for favourable terms.

The Solution

After thorough research and discussions with multiple lenders, we were able to secure a mortgage solution that met all of the client’s objectives. Despite the limited number of lenders allowing debt consolidation at 79% LTV, we successfully arranged a new 21-year mortgage of £379,000 on a fixed 5-year rate of 4.30%.

The Results

The client successfully secured a new mortgage that met all her financial goals. By consolidating her existing mortgage, secured loan, and unsecured debts into one new fixed-rate product, the following outcomes were achieved:
  • Monthly payments reduced by £1,270, from £3,560 to £2,290.
  • Secured a competitive 5-year fixed rate of 4.30%, providing payment stability.
  • Simplified finances with a single monthly mortgage payment.
  • Improved cash flow, allowing surplus income each month.
  • Enhanced financial peace of mind with fixed repayments and reduced outgoings.
  • This solution significantly improved the client’s financial position and provided long-term affordability and certainty.
Lender:
Previous Rate:
New Rate:

This solution had a significant positive impact on the client’s financial wellbeing by providing reducing financial pressure and giving payment certainty.

Advisor: Jodi Spreadbury

Is a Debt Consolidation Remortgage the Right Move for You?

Getting a remortgage for debt consolidation purposes is a way to reduce or clear some debts, but this option should be thought about carefully before you take the plunge – and this option depends on a few factors; 

Do you have enough equity in your home?

It’s important to realise that in order to be eligible for a remortgage, you do need to have equity in your property. Equity in this case is the difference between the value of your property and your outstanding mortgage amount. 

What types of debts are you wanting to consolidate?

If you are considering remortgaging in order to pay off short-term borrowing then taking out a remortgage for debt consolidation may not be the best choice for you. Because of the long-term nature of a mortgage, you will most likely end up paying more interest over the life of the mortgage. 

Have you explored other options?

A debt consolidation remortgage should be considered an option only after you have looked into other routes. Clearing debt by securing it against your home shouldn’t be your first choice ideally.  

It’s wise to look into all your options to see which is the best avenue for you. For example, you could instead move your credit card balance to a lower-interest card, or you could take out a debt-consolidation loan. 

Do the Debts I Have Qualify for A Consolidation Mortgage?

Can You Remortgage for Debt Consolidation With Bad Credit?

If you have a poor credit score then remortgaging may be more difficult, but a bad debt consolidation remortgage is definitely not impossible. Many lenders will require a minimum credit score rating in order to approve you for a remortgage and that figure will vary from lender to lender. 

However, there are lenders out there who will be willing to consider your remortgage application although you may end up with higher interest rates and fees. 

Working with a mortgage broker will help you to find the right lender for your circumstances and improve your chances of getting approved and obtaining favourable rates. 

Can You Be Refused a Remortgage?

Yes, it is possible that your application for a remortgage can be refused because the offer of a remortgage is at the discretion of the lender. When lenders are considering your application they will assess your financial situation as a whole, including: 

  • Your credit score 

Typically lenders are looking for a healthy credit score, or at least a minimum credit score. However, there is no ‘magic number’ as the number varies according to the credit reference agency (CRA). The main three agencies used are Experian, Equifax, and TransUnion. Bear in mind also that different lenders look for different things. 

  • Your income 

Do you have a steady salary with a regular payday? Is your salary increasing or has it declined recently? Do you get paid on a regular payday or perhaps you are a freelancer whose income is less predictable. 

  • Your expenditure 

Your income will be assessed in balance with your outgoing payments. Are your monthly payments easily covered by your monthly income or do your outgoings exceed your income? 

  • Your debts 

How much borrowing are you repaying? Do you have an overdraft, loans, credit cards, store cards or other debts? Are you steadily reducing your debts or just meeting the interest each month? 

  • Your reliability 

Do you always make your payments on time? Missed payments reflect badly on your credit and are an important consideration for a potential lender. 

  • The value of your home 

Has your property increased or decreased in value? Have you made home improvements or has the condition of your home deteriorated since you bought it? 

  • The equity in your home 

Equity in your home is the amount that you have paid off against your mortgage and includes the current value of your home. If your home is worth more than you owe then you have equity which you could potentially release and use to clear other debts you may have. 

A major thing that a lender will look for is to see if you can afford to make your monthly payments easily and on time. 

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Can You Remortgage a Shared Ownership Property?

While a shared ownership remortgage for debt consolidation may be possible it might be more tricky than a traditional remortgage. You would apply for a remortgage in the usual way, but you will need to find a lender who deals with shared ownership mortgages and meet their eligibility requirements. 

Fewer lenders offer shared ownership remortgages so approaching a professional mortgage broker will increase your chances of success. Here at The Mortgage Broker we have a wealth of experience and contacts within the industry to help you find the best lender and the best deal for your unique requirements.  

Getting a 90% LTV Remortgage for Debt Consolidation

A 90% LTV (Loan to Value) remortgage means that you can obtain a remortgage and borrow up to 90% of the value of your property. 

While 90% is considered a high LTV (some lenders may even provide up to 95% LTV) a 70% LTV or under is generally thought of as low and typically a lower LTV ratio will mean more competitive rates. 

So what does this mean?  

Example: 

  • Your property is currently valued at £100,000 
  • You are offered a 90% LTV remortgage 
  • The maximum total borrowing allowed would be £90,000 
  • Your current mortgage is £85,000 
  • You would therefore be able to consolidate for an amount of £5000 

Bear in mind that you need to have equity in your home in order to remortgage. This is worked out as the difference between the value of your home and the balance owing on your current mortgage.  

If you have at least 10% equity then you may be eligible for a 90% LTV as long as you meet the lender’s other criteria. The more equity you have in your property, the better rates you will typically be offered. 

Summary

A debt consolidation remortgage is a way of releasing equity in your property so that you can clear other borrowing you may owe and add it to your new mortgage. 

Obviously a remortgage for debt consolidation is not to be taken lightly and does have implications for your financial situation, both positive and negative.  

The additional borrowing will increase the balance on your mortgage and this is secured against your property, putting your home at risk if you default. 

Your credit score will temporarily worsen, however it should improve with time as you have cleared your old debts. 

Consolidating several debts can make your finances easier to manage, with a single payment on the same day instead of several payments going out to different lenders on different days. 

If you are looking to secure a remortgage to consolidate debt at any point in your mortgage journey, your chances are increased automatically by going through the process with a mortgage broker at your side due to the number of lenders they can explore.