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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.
It can be possible to remortgage to consolidate debt. You borrow more than your current mortgage balance and use the extra to pay off other debts, such as credit cards, loans or overdrafts, leaving one monthly mortgage payment. A lender’s decision depends on your equity, income, credit history and its own criteria.
The trade-off is significant. Unsecured debts become secured on your home, so if you cannot keep up with payments your home could be at risk. Spreading short-term debts over a long mortgage term can also mean paying more in total, even if the monthly cost falls.
How a debt consolidation remortgage works
- You apply for a new mortgage, with a new lender or your existing one, for more than you currently owe.
- The new mortgage pays off your existing mortgage.
- The extra borrowing is used to repay your other debts. Sometimes the lender or solicitor pays the creditors directly.
- You then make one monthly payment to the mortgage lender.
Borrowing more raises your loan to value (LTV), which can affect which lenders might consider you. Our guide on how LTV affects a bad credit remortgage explains this. If you have adverse credit, such as defaults or a CCJ, the choice of lenders may be narrower and rates are often higher than high-street rates.
Regulated mortgage advisers must consider whether consolidating debts into a mortgage is appropriate for you. Expect questions about why you want to do it, what the debts are and how you plan to avoid building them up again. Our page on debt consolidation remortgages covers the process in more detail.
Pros and cons of consolidating debt into a mortgage
| Possible advantages | Possible disadvantages |
|---|---|
| One monthly payment instead of several | Unsecured debts become secured on your home |
| Monthly outgoings may fall | A longer term can mean paying more in total |
| Mortgage rates can be lower than some unsecured borrowing | Rates for adverse credit are often higher than high-street rates |
| Budgeting can be simpler | Early repayment charges may apply on your current deal |
| Clearing card balances may help your credit file over time | Fees for arranging the new mortgage may apply |
| Fewer payment dates to keep track of | Cleared cards can be used again, building new debt on top |
Why a longer term can cost more in total
This is the point people most often overlook. A personal loan might be repaid over 5 years. Add the same amount to a mortgage with 25 years left and you pay interest on it for 25 years instead of 5.
The table below is illustrative only, not a quote.
| Example | Repaid separately over 5 years | Added to a mortgage over 25 years |
|---|---|---|
| Amount borrowed | £20,000 | £20,000 |
| Number of monthly payments | 60 | 300 |
| Monthly payment | Higher | Lower |
| Years you pay interest | 5 | 25 |
| Total repaid | Lower in many cases | Often higher, even at a lower rate |
A lower monthly payment can help if your budget is stretched, but it does not mean the debt is cheaper. Many mortgage deals allow some overpayments each year without a charge, which can reduce the total cost if you are able to pay more. Check the terms of any deal before relying on this.
Early repayment charges (ERCs)
If you are still in a fixed or tracker deal, leaving early to remortgage can trigger an early repayment charge. ERCs can be large, so check your mortgage offer or annual statement for the amount and the date the charge ends. Many people can arrange a new deal a few months before their current one ends, often 3 to 6 months ahead depending on the lender, which can help avoid ERCs.
Remortgaging also usually involves a valuation and legal work, and there may be product or broker fees. Some straightforward remortgages come with a free legal package, but check what is included.
Alternatives to remortgaging to consolidate debt
Further advance
A further advance is extra borrowing from your current lender on top of your existing mortgage. It avoids leaving your current deal, but it is still secured on your home and the lender will assess affordability.
Second charge mortgage
A second charge mortgage, sometimes called a secured loan, is a separate loan secured on your home behind your first mortgage. It can be an option when leaving your current deal would mean large ERCs. It is still secured borrowing, and terms vary between lenders.
Balance transfer credit card
A balance transfer moves card debt onto a new card with a low or no-interest introductory period. The debt stays unsecured, but you usually need a reasonable credit history to be accepted, a transfer fee may apply and the rate normally rises when the introductory period ends.
Debt management plan (DMP)
A DMP is an informal agreement to repay your creditors an amount you can afford, and debt charities can often set one up free. Your debts stay unsecured. Creditors may record arrangement-to-pay markers or defaults, and they do not always freeze interest. See remortgaging with a debt management plan.
Free debt advice
If your debts feel unmanageable, free and impartial advice from MoneyHelper, StepChange or National Debtline is a sensible first step before taking on secured borrowing. A debt adviser can look at all your options, including ones that do not involve borrowing more.
If you are already behind on your mortgage, read can you remortgage with mortgage arrears first.
Questions to ask yourself first
- Could I keep up the new mortgage payments if my income dropped, or if my payments rose when the deal ends?
- Am I comfortable with these debts being secured on my home?
- How much would I repay in total over the full term, compared with repaying the debts as they are?
- Would I face early repayment charges on my current mortgage?
- What caused the debts, and has that changed? Will I close or limit the cards I clear?
- Have I spoken to a free debt adviser about the alternatives?
- Would staying put, a product transfer, a further advance or a second charge mortgage suit me better?
There is no single right answer. Setting out the total cost, the risk to your home and the alternatives side by side is the best way to compare them.
Frequently asked questions
Is it a good idea to consolidate debt into a mortgage?
It depends on your circumstances. It can lower your monthly payments and simplify things, but your debts become secured on your home and a longer term can mean paying more in total. A regulated adviser must consider whether it is appropriate for you, and free debt advice can help you compare the alternatives first. See our page on debt consolidation remortgages.
Can I consolidate debt with bad credit?
It can be possible. Some lenders consider debt consolidation for people with adverse credit, such as defaults or a CCJ, depending on the details, your equity and your affordability. The choice of lenders may be narrower, rates are often higher than high-street rates, and some lenders may pay your creditors directly.
Will I have to pay an early repayment charge?
You may, if you leave your current fixed or tracker deal before it ends. Check your mortgage offer or annual statement for the amount and the end date. If the charge would be large, a further advance or a second charge mortgage can be alternatives, because they leave your main mortgage in place.
Can I consolidate debt if I am on a debt management plan?
Some lenders may consider it, often depending on how long the plan has been running, whether payments have been kept up and what creditors have recorded on your file. Speak to your DMP provider first, as clearing the debts changes the plan. See remortgaging with a debt management plan.