Because a personal loan is unsecured, settling it through your mortgage moves the debt from having no specific asset behind it to being secured against your home, which is the main trade-off to weigh up against the usually lower monthly cost.
This page looks specifically at personal loans as a debt to consolidate. For the wider risks and mechanics of debt consolidation, see our debt consolidation remortgage page, and for card debt specifically, see remortgaging with credit card debt.
On this page
This page covers
- Reason for remortgaging
- Consolidating debtsSecuring debts on your home carries extra risk and needs careful thought.
In short
- Settling a personal loan early uses a settlement figure, which can include a small interest rebate under some agreements.
- Personal loans are unsecured, so settling them through a remortgage secures that debt on your home instead.
- A lower monthly payment over a longer mortgage term can mean paying more overall for the same loan.
- Multiple personal loans increase the total amount you need to borrow, which raises your loan-to-value.
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 settling a personal loan through a remortgage work?
You ask each lender for an early settlement figure, which is the amount needed to clear the loan in full now, rather than the balance shown on a statement. Some agreements include a small reduction in the interest owed when you settle early, though this varies by lender and agreement. Once you have the figures, the total can be included in the extra borrowing raised through your remortgage.
Personal loans usually run for a fixed term, often 1 to 7 years, at a fixed monthly payment. Moving the same amount onto a mortgage spreads it over a much longer period instead, which is why the monthly figure usually falls.
Personal loans and multiple debts at once
Many people consolidating debt have more than one personal loan, sometimes alongside credit cards or other borrowing. Each loan needs its own settlement figure, and the combined total sets how much extra you need to borrow through the remortgage.
| Illustrative figures | Loan A | Loan B | Combined |
|---|---|---|---|
| Settlement figure | £6,000 | £4,500 | £10,500 |
| Current monthly payment | £220 | £140 | £360 |
| Payment if added to a 25-year mortgage | n/a | n/a | About £60 |
Hypothetical round numbers used to show the effect of combining loans, not based on any real product, rate or fee.
The monthly saving in an example like this can look significant, but it does not show the total cost over the full mortgage term. See how LTV affects a bad credit remortgage for how the extra borrowing affects your loan-to-value.
Weighing the total cost, not just the monthly payment
A personal loan repaid over, say, 5 years at a fixed rate has a total cost that is set from the start. Spreading the same amount over a 20 or 25-year mortgage term means paying interest on it for far longer, which can mean paying more in total even if the mortgage rate itself is lower than the loan rate.
A personal loan carries no direct claim on your home if you fall behind, though it can lead to a default or a CCJ. Once it is settled through a remortgage, the same amount is secured against your home, and missing payments could put your home at risk.
Alternatives to consolidating personal loans
- Keeping the loans as they are, if the payments are manageable and the remaining term is short.
- Overpaying or shortening the term on the consolidated amount, if your mortgage allows this, to reduce the total cost.
- Talking to your loan providers, who may agree a payment arrangement if you are struggling.
- A second charge mortgage, which leaves your current mortgage deal in place but still secures the loans on your home.
Free, impartial advice is available from MoneyHelper, StepChange and National Debtline if you want to compare these options first.
What may shape consolidating personal loans through a remortgage
| Factor | Why it matters |
|---|---|
| Settlement figures | The exact amount needed to clear each loan early, obtained from the lender. |
| Number of loans | Consolidating several loans increases the total amount you need to borrow. |
| Remaining term on each loan | A loan close to finishing may have less to gain from being settled early. |
| Payment history on the loans | Missed payments or defaults on the loans are assessed as part of your wider credit history. |
| Term of the new mortgage borrowing | A longer term lowers the monthly cost but can raise the total paid over time. |
| Loan to value after the extra borrowing | Raising money to clear loans increases your LTV, which can affect your options. |
| Income and affordability | The larger mortgage still has to pass an affordability check against your income and outgoings. |
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.
- Early settlement figures for each personal loan
- Current monthly payments and remaining terms
- Your credit reports from Experian, Equifax and TransUnion
- Your mortgage balance, deal end date and any early repayment charges
- An estimate of your property’s current value
- Proof of income and a realistic monthly budget
Frequently asked questions
Do I need a settlement figure for every loan I want to consolidate?
Yes. Each loan has its own settlement figure, which is usually different from the balance shown on a statement, since some agreements include a small reduction in interest for settling early.
Can I consolidate personal loans if I have missed payments on them?
It can be possible, but recent missed payments on the loans you want to clear may affect what a lender offers. See remortgaging with missed payments for how these are generally viewed.
Is it always cheaper to add personal loans to my mortgage?
Not necessarily. The monthly payment is usually lower, but the total cost can be higher because mortgage interest runs for many more years than a typical personal loan. Compare total costs before deciding, not just the monthly figure.
What if I only want to consolidate one of several personal loans?
That is usually your choice. You can settle just one loan through the remortgage and keep the others as they are, though a lender will still look at all your outgoings when working out what you can afford.