Some homeowners use a remortgage to raise extra money and pay off one or more defaults, either to clear an outstanding balance before applying elsewhere, or as part of the remortgage itself. It can make sense where it genuinely improves your position, but it comes with a real trade-off: unsecured debts such as loans, cards or old bills become secured against your home, and a longer mortgage term can mean paying more in total, even if the monthly cost falls.
This page explains how paying off defaults through a remortgage actually works, how lenders handle it on completion, and what to weigh up before deciding. Our main page on remortgaging with defaults covers how defaults are dated and recorded generally.
On this page
This page covers
- Credit issue
- DefaultsUsually stays on your credit file for 6 years from the default date.
- Reason for remortgaging
- Consolidating debtsSecuring debts on your home carries extra risk and needs careful thought.
Read the main guide: Remortgaging with defaults on your credit file
In short
- Paying off defaults through a remortgage settles the balance but secures the debt on your home.
- Some lenders require certain defaults to be paid on completion, sometimes directly to the creditor.
- A longer mortgage term can mean paying more overall, even if the monthly payment is lower.
- A regulated adviser must consider whether this approach is appropriate for your circumstances.
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.
What does it mean to pay off defaults through a remortgage?
It usually means borrowing more than you currently owe on your mortgage, with the extra amount used to clear one or more defaulted debts. Instead of paying several separate creditors, you have one larger mortgage payment. The defaults themselves are marked as settled once paid, but they still stay on your credit file for 6 years from each default date, the same as if you had paid them any other way.
| Approach | How it works | Where the money comes from |
|---|---|---|
| Paying before you apply | Defaults are cleared using savings or other funds first, then you apply once settled | Your own money, before the remortgage |
| Paid on completion | The lender releases funds that are used to clear specific defaults as a condition of the mortgage | The remortgage itself, at completion |
| General debt consolidation | Extra borrowing clears defaults alongside other debts, such as cards or loans | The remortgage, as part of a wider consolidation |
For illustration only. Requirements vary by lender.
How does a lender handle paying off defaults on completion?
Some lenders that consider adverse credit will ask for certain defaults to be repaid as a condition of the mortgage, particularly larger or more recent ones. In practice this can mean your solicitor pays the creditor directly from the funds released at completion, so the debt is cleared at the same time the new mortgage starts, rather than money being paid to you first.
Other lenders leave it to you to arrange, releasing the funds and expecting you to settle the debts yourself afterwards. Always ask which approach a lender expects, and get written confirmation of exactly which defaults must be cleared and by when.
Weighing the cost: is releasing equity worth it?
Clearing defaults this way settles the balances and removes outstanding debts from your file, which some lenders may view more favourably going forward. It does not remove the defaults themselves, and it does not shorten the 6 years each one stays on record.
Once defaults are paid off through a remortgage, that borrowing is secured against your home. If you cannot keep up the new mortgage payments, your home may be at risk of repossession. Spreading the amount over a much longer term than the original debts can also mean paying significantly more in total.
A regulated mortgage adviser must consider whether consolidating debts into a mortgage is appropriate for you, and should set out the total cost over time, not just the change in monthly payment. Our guide on whether you should remortgage to pay off debt goes into this in more detail.
What are the alternatives to raising money to clear defaults?
Before deciding to release equity, it is worth comparing the total cost with other ways of dealing with the same defaults.
- Paying defaults off gradually from income, without extending your mortgage term or increasing what is secured against your home.
- Negotiating a partial settlement with the creditor for less than the full balance. See partially settled defaults.
- A debt management plan, which keeps the debts unsecured while you repay them at an affordable rate. See remortgaging with a debt management plan.
- A second charge mortgage, a separate loan secured behind your existing mortgage, which leaves your current deal untouched but still carries the same risk to your home.
Free, impartial advice on comparing these options is available from MoneyHelper, StepChange and National Debtline, and speaking to them before you commit can help you see the full picture, including options that do not involve your home at all.
What may affect paying off defaults through a remortgage
| Factor | Why it matters |
|---|---|
| Total defaults to clear | The combined balance sets how much extra you need to borrow. |
| Whether the lender requires it on completion | Some lenders insist on certain defaults being paid as a condition; others leave it to you. |
| Loan to value after the extra borrowing | Raising more against your home increases your LTV, which can narrow your choice of lender. |
| Term of the new mortgage | A longer term lowers the monthly cost but usually increases the total interest paid. |
| Property value | An up-to-date valuation sets how much equity is available to release. |
| Income and affordability | Lenders stress test the larger mortgage payment against your income and other outgoings. |
| Employment type | Self-employed, director and contractor income is assessed differently, which can affect how much can be raised. |
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 the defaults you want to clear, with balances, creditors and default dates
- Settlement figures or up-to-date balances for each debt
- 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
- What led to the defaults and what has changed since
Frequently asked questions
Does paying off a default through a remortgage remove it from my file?
No. It changes the status to satisfied or settled, but the default still stays on your credit file for 6 years from the default date, the same as if you had paid it any other way.
Will a lender lend more than I need to just clear my defaults?
Lenders generally only lend what you can afford and what the property supports at an acceptable loan to value, so the amount released to clear defaults still has to fit within those limits, not simply what you would like to borrow.
Is it better to pay off defaults myself or through the remortgage?
If you can afford to pay them off yourself without borrowing more, that avoids securing the debt on your home and any extra interest over the mortgage term. Using the remortgage can help where you do not have the funds available another way, but it carries more long-term cost and risk.
What happens if I cannot keep up payments after clearing defaults this way?
Because the debt is now part of your mortgage, missed payments could ultimately put your home at risk. Contact your lender early if you are struggling, and get free advice from National Debtline or StepChange before things reach that point.