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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.
A debt consolidation loan is an unsecured personal loan used to pay off several existing debts, repaid over a shorter term than a mortgage. A debt consolidation remortgage does something similar but by increasing or replacing your mortgage, spreading the debt over a much longer term and securing it against your home. Both bring several debts into one monthly payment, but the term, the security and the risk if things go wrong are quite different.
How do the two actually compare?
| Debt consolidation loan | Debt consolidation remortgage | |
|---|---|---|
| Security | Unsecured | Secured against your home |
| Typical term | Often 1 to 7 years | The remaining mortgage term, which can be much longer |
| Amount available | Usually smaller, based on the lender’s unsecured lending limits | Can be larger, depending on your equity and affordability |
| Speed to arrange | Often faster, no valuation usually needed | Slower, since it involves a full mortgage assessment |
| Effect of missing a payment | Affects your credit file; unsecured debt recovery routes apply | Affects your home, since the debt is now part of the mortgage |
| Typically suits | Smaller, manageable debts you want cleared within a few years | Larger debts, or where a personal loan isn’t available or enough |
When does a personal loan tend to make more sense?
- The total debt is within what an unsecured lender will lend, and you’d rather clear it within a few years than have it sit on your mortgage for decades.
- You want to keep the debt separate from your home, so a repayment problem doesn’t put your home directly at risk.
- You don’t want to disturb your current mortgage deal, particularly if leaving it early would trigger an early repayment charge.
- Your credit history supports a reasonable unsecured rate. Lenders price personal loans partly on risk, so adverse credit can mean a higher rate or a smaller loan being offered.
When does a debt consolidation remortgage tend to make more sense?
- The debt is larger than most personal loans will cover, or you’ve been declined for an unsecured loan large enough to clear everything.
- You have enough equity that adding the debt keeps your loan to value at a level a lender is comfortable with.
- A lower monthly payment matters more than the total cost, at least in the short term, since spreading debt over a mortgage term usually reduces the monthly figure, even though it can increase the total interest paid.
- You’re already remortgaging for another reason, such as your current deal ending, and adding the debt into the new mortgage avoids running two separate types of borrowing side by side.
What does the longer term actually cost?
The main trade-off is straightforward but easy to underestimate. A personal loan repaid over, say, 5 years clears the debt relatively quickly, even if the monthly payment is higher than adding it to a mortgage. Moving the same debt into a mortgage over 20 years usually lowers the monthly cost, but you pay interest on it for the whole of that time, which can mean paying considerably more overall for the same original amount. Our guide on whether you should remortgage to pay off debt works through this trade-off with an illustrative example.
Can you combine the two approaches?
Some people do. A personal loan can clear smaller, more urgent debts quickly, while larger amounts are dealt with separately, sometimes through a remortgage if the amount doesn’t suit an unsecured loan. Others compare a debt consolidation loan against a second charge mortgage rather than a full remortgage, particularly if leaving their current mortgage deal early would mean an early repayment charge. There’s no single right order to do things in, only what fits the size of the debt, your equity, and how soon your current mortgage deal ends.
Is a further advance a middle option worth knowing about?
A further advance is extra borrowing taken from your existing mortgage lender, sitting alongside your current deal rather than replacing it. It’s a different route again from either a personal loan or a full remortgage, and our guide on what a further advance is explains how it generally compares. Some people find it disturbs their existing deal less than remortgaging with a new lender, though it depends on what your current lender is willing to offer, your equity and your affordability. It’s worth asking about alongside the other two options rather than assuming a personal loan or a full remortgage are the only choices.
What do lenders check for each?
Both routes involve an affordability check, though the depth differs. Personal loan lenders generally check your income, existing commitments and credit file, but rarely ask for as much documentation as a mortgage lender. A remortgage lender assesses your whole household income and outgoings, applies a stress test against a higher hypothetical rate, and usually arranges a valuation of your home. Because a remortgage assessment is fuller, it can sometimes surface affordability issues that a quicker personal loan application wouldn’t have flagged, which is worth being prepared for either way.
What does this mean if you have adverse credit?
Adverse credit narrows both options, but differently. Personal loan providers price mainly on risk, so a CCJ, default or mortgage arrears can mean a higher rate, a smaller loan, or being declined by mainstream lenders. A debt consolidation remortgage is assessed by lenders who look at your whole mortgage application, and some specialise in adverse credit, though again the pool is narrower and pricing is generally higher than for a clean credit history. Our page on debt consolidation with bad credit explains how lenders in this space typically approach it.
Whichever option looks more realistic, remember that only the remortgage route puts your home directly at risk if repayments aren’t kept up, and a longer term can mean paying more overall even at a similar rate. If the debts already feel unmanageable, get free, impartial advice from MoneyHelper, StepChange or National Debtline before deciding between them.
Frequently asked questions
Is a debt consolidation loan cheaper than a remortgage?
It depends on the amounts and terms involved. A personal loan is usually repaid over a shorter term than a mortgage, so the total interest paid on the same sum can be lower even where the rate itself is similar or higher. We can't quote rates here, so compare actual offers, or ask an adviser to help work through the numbers.
Can I get a debt consolidation loan with bad credit?
It can be harder to be accepted, and the rate offered is often higher, since unsecured lenders price for the extra risk. A CCJ, default or low credit score can narrow the loans available. See remortgaging with a low credit score for how bad credit is generally assessed.
Does a debt consolidation loan affect a later mortgage application?
It's an existing commitment that a mortgage lender will include in your affordability assessment, alongside your other outgoings. A new loan and the credit search behind it can also affect your credit file, so timing matters if you're planning to remortgage soon. See how lenders assess affordability.
Which is quicker to arrange?
A personal loan is often quicker, since it doesn't usually involve a valuation or as much legal work as a remortgage. A remortgage takes longer partly because the whole mortgage is being reassessed, not just the extra amount you want to borrow.