It is often possible to remortgage to pay off debt, using some of your equity to clear cards and loans in a debt consolidation remortgage, even with adverse credit, but it depends on how much equity you have, your credit history and whether the larger mortgage is affordable. It is also a decision with real risks. Credit card and loan debts become secured on your home, and spreading them over a mortgage term can mean paying more in total, even if the monthly cost goes down.
This page explains how a debt consolidation remortgage works, the costs that are easy to miss and the alternatives worth comparing, including free debt advice. It does not tell you whether consolidation is right for you. That depends on your full circumstances, and a regulated adviser must consider whether it is appropriate.
On this page
In short
- Unsecured debts become secured on your home, so your home is at risk if you fall behind.
- A lower monthly payment over a longer term can mean paying more in total.
- Early repayment charges, fees and your LTV all affect whether it adds up.
- Alternatives include a second charge mortgage, a DMP and free debt advice.
Your home may be repossessed if you do not keep up repayments on your mortgage. Think carefully before securing other debts against your home. Borrowing over a longer term can mean paying back more in total.
How does a debt consolidation remortgage work?
You move your mortgage to a new deal and borrow more than you currently owe. The extra money is used to repay other debts, such as credit cards, personal loans or car finance. Instead of several payments you have one mortgage payment, usually over a much longer term.
With adverse credit, some lenders may insist that particular debts are repaid on completion, sometimes by paying the creditors directly. Others may not lend for consolidation where the debts are recent or large. Our guide can you remortgage to consolidate debt? covers the basics in more depth.
Secured and unsecured debt: what changes?
Most credit cards and personal loans are unsecured. If you fall behind, the lender can chase the debt, add charges, register a default or seek a county court judgment, but it has no direct claim on your home.
Once those debts are part of your mortgage, they are secured. If you cannot keep up the payments, your home could be repossessed. For some people the lower payment brings stability. For others the extra risk outweighs the monthly saving.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Why can a longer term cost more in total?
Consolidation often reduces monthly outgoings because the debt is repaid over many more years. Interest is charged for all of those years, so the total you repay can end up higher, even if the mortgage rate is lower than the rates on your cards or loans.
| Illustrative figures | Keep the existing loan | Add it to the mortgage |
|---|---|---|
| Debt being repaid | £10,000 | £10,000 |
| Monthly payment | £350 | £60 |
| Repaid over | 3 years | 25 years |
| Total repaid | About £12,600 | About £18,000 |
Illustrative only, not a quote. Hypothetical round numbers chosen to show the effect of time, not based on any real product, rate or fee. Fees and early repayment charges would change the comparison, and your own figures will differ.
In this example the monthly saving is real, but so is the higher total. If your mortgage allows overpayments, paying extra towards the consolidated amount can reduce the total, and some lenders let you put that part of the loan on a shorter term. It is worth asking about both.
Early repayment charges, fees and your LTV
- Early repayment charges. Leaving your current deal before it ends can trigger ERCs. If they are large, it may make more sense to wait, or to look at a further advance or second charge mortgage.
- Fees. Product, valuation, legal and broker fees may apply. Adding fees to the loan means paying interest on them too.
- Loan-to-value. Borrowing more raises your LTV, and with adverse credit a higher LTV can mean fewer options and higher rates. See how LTV affects a bad credit remortgage.
- Your credit file. Recent defaults or missed payments will shape which lenders may consider you, and on what terms.
What are the alternatives to a debt consolidation remortgage?
A regulated mortgage adviser must consider whether consolidating debts into a mortgage is appropriate for you, and should compare it with other options. These may include:
- A product transfer with your current lender, keeping your mortgage costs in check while you deal with the debts separately.
- A further advance from your current lender, which can avoid ERCs on your existing deal.
- A second charge mortgage, a separate secured loan that leaves your current mortgage untouched. It carries the same risk to your home.
- A debt management plan, which keeps the debt unsecured. See remortgaging with a debt management plan for how this affects future borrowing.
- Talking to your creditors, who may agree reduced payments or freeze interest if you are struggling.
Free, impartial advice is available from MoneyHelper, StepChange and National Debtline. Speaking to them before you commit can help you see every option, including ones that do not involve your home. If you are behind on your mortgage, contact your lender early.
Avoiding the same debts building up again
Consolidation clears balances, but it does not change the habits or circumstances that created them. If cleared cards are used again, you can end up with the larger mortgage and fresh unsecured debt at the same time, which is a much harder position to recover from.
- Work out a realistic monthly budget before you apply.
- Decide what you will do with cleared cards, such as reducing limits or closing some.
- Build a small emergency fund if you can, so unexpected bills do not go on credit.
- Get free help early if payments start to slip.
What may affect your remortgage options
Lenders look at the debts you want to clear as well as your credit history. These are the points that most often shape what may be possible.
| Factor | Why it matters |
|---|---|
| Age of any credit issues | Recent defaults or missed payments, particularly on the debts you want to clear, can make lenders cautious about consolidation. Older, settled issues usually weigh less. |
| Amount of debt to consolidate | The total you want to repay affects how much you need to borrow and whether the new payment is affordable. |
| Whether debts are up to date, in arrears or settled | Clearing up-to-date debts may be viewed differently from clearing debts in arrears or default. Some lenders may require certain debts to be repaid on completion. |
| Number of debts and credit issues | Many accounts, or several recent problems, can suggest ongoing difficulty, and lenders may look closely at the reasons. |
| Current mortgage payment history | A clean mortgage record helps show the mortgage has been prioritised, even if other debts have slipped. |
| Property value | A current valuation sets how much equity is available to release. |
| Outstanding mortgage balance | Your balance, plus the debts to be cleared and any fees added, becomes the new loan amount. |
| Loan-to-value and equity | Consolidation pushes your LTV up. The higher it goes, the fewer options there may be with adverse credit. |
| Income and affordability | Lenders assess whether the larger mortgage is affordable and stress test it. Depending on the lender, debts being cleared may be left out of your outgoings in the calculation. |
| Employment type | Self-employed and contract income is assessed differently. See self-employed remortgages with bad credit. |
These are general points, not lender rules. Each lender sets and changes its own criteria.
Information an adviser may ask for
You don’t need all of this to make an enquiry. It helps to know where to find it, because an adviser is likely to ask about most of it.
- A list of every debt you want to clear, with balances, monthly payments and settlement figures
- Recent statements for each of those debts
- Your credit reports from Experian, Equifax and TransUnion
- Your current mortgage balance, deal end date and any early repayment charges
- An estimate of your property’s value
- Proof of income and a realistic monthly budget
- Details of any debt management plan or arrangements with creditors
- What led to the debts and what has changed since
Specific situations
More detail for particular circumstances.
Remortgaging to consolidate debt when you have bad credit
How adverse credit changes a debt consolidation remortgage, from debts a lender may want cleared to LTV limits, higher rates and plans such as a DMP or IVA.
Using a remortgage to pay off car finance
Settling hire purchase or PCP car finance through a remortgage, how a settlement figure works, and how this compares with voluntary termination.
Remortgaging when you have credit card debt
How credit card balances and payment history affect a remortgage, and the trade-offs of using your mortgage to clear card debt, including the alternatives.
Using a remortgage to pay off HMRC tax debt
Raising money through a remortgage to clear a self-assessment bill or Time to Pay arrangement, compared with paying HMRC directly, and what to weigh up.
Using a remortgage to pay off payday loans
How payday loan history affects a debt consolidation remortgage, why recent or frequent use is viewed differently to other debts, and what may help.
Using a remortgage to pay off personal loans
Settling one or more personal loans through a remortgage, how early settlement figures work, and how the total cost compares with keeping the loans as they are.
Debt consolidation remortgage with a CCJ
Consolidating cards, loans or other debts through a remortgage when a CCJ also sits on your file, and how its status and age can change what a lender asks for.
Debt consolidation remortgage with defaults
How defaults on your file affect consolidating other debts through a remortgage, including what some lenders may want cleared first.
Debt consolidation remortgage with missed payments
How recent or frequent missed payments affect consolidating cards, loans or other debts through a remortgage, and what tends to help before you apply.
Frequently asked questions
Can I consolidate debts that have defaulted or have a CCJ?
Sometimes. Some lenders may be willing to lend to clear defaulted debts or county court judgments, and some may require them to be paid as part of the remortgage. Paying them marks them as satisfied or settled, but they stay on your credit file for 6 years from the default or judgment date. Our pages on defaults and CCJs explain more.
Will consolidating my debts improve my credit file?
It can help over time. Cleared cards and loans show as settled, your credit use falls, and one manageable payment may make it easier to avoid missed payments. The remortgage application itself adds a hard search, and old negative entries stay for their full 6 years. If new debts build up, any improvement can be lost. Our page on low credit scores explains what lenders look at.
Is a second charge mortgage better than remortgaging to consolidate?
Neither is better in every case. A second charge mortgage leaves your current mortgage in place, which can make sense if you have a good existing deal or large early repayment charges. A remortgage replaces everything with one loan. Both secure the debt on your home, and the costs differ. An adviser should compare the two for your situation.
Can I consolidate debts while I am on a DMP?
It may be possible, but fewer lenders consider an active plan, and consolidation turns informal, unsecured arrangements into secured debt. If the plan is close to finishing, waiting may be the better option. Our page on remortgaging with a debt management plan covers this, and free advice from StepChange can help you compare options.
Can I include car finance in a debt consolidation remortgage?
Car finance can often be repaid as part of consolidation, but check your agreement first. Settling hire purchase or PCP early is done using a settlement figure from the finance company, so ask for one before you apply. Securing the cost of a car over a mortgage term can mean you are still paying for it long after the car has gone.
What happens if I cannot keep up the new mortgage payments?
Contact your lender as soon as you can. Lenders must treat struggling borrowers fairly and consider options such as a payment arrangement. Free advice is available from National Debtline and MoneyHelper. Because the debts are now secured, arrears can ultimately lead to repossession, which is why affordability matters so much before you commit.