REMORTGAGE FOR
DEBT CONSOLIDATION

REDUCE YOUR MONTHLY EXPENSES WITH A REMORTGAGE
AND BORROW AGAINST THE EQUITY IN YOUR PROPERTY

SPEAK TO OUR SPECIALISTS ABOUT A DEBT CONSOLIDATION REMORTGAGE

REMORTGAGE FOR<br>DEBT CONSOLIDATION
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Remortgage for debt consolidation

If in debt, a debt consolidation remortgage can be a way of reducing your monthly expenses. This is done by using the equity on your property to borrow against as a form of secured loan.

The money from the loan can then be used to repay other significant unsecured debt such as overdue credit card bills. If a considerable amount of debt has been built up this can allow some breathing room and a way back to financial security.

There are a few considerations that need to be thought about before undertaking a remortgage for debt consolidation purposes.

About remortgaging for debt consolidation

Below we will be highlighting all of the things a borrower may need to know before taking out a debt consolidation remortgage.

It is essential to consider all pros and cons of this type of remortgage before applying. It is best to be sure remortgaging is definitely the right decision, before committing to any kind of mortgage agreement.

How to remortgage for debt consolidation

Remortgaging can be a useful option for people with a current mortgage in place looking to take out a loan. The majority of people with a mortgage will be able to remortgage. But it is still a good idea to compare lenders to secure the best possible rates.

Before you apply for a remortgage you will need to consider other factors and options such as:

1)   Equity – does the property have enough equity to be able to release the amount of capital that you’ll need to pay off the total amount of the debt?

2)   Early repayment charges (ERCs) – the current lender may charge early repayment charges for switching to a new mortgage deal before the end of the current mortgage term.

3)   Further advance – another option to pay off the debt could be a further advance on your current mortgage rather than switching deals completely. Speak to the current lender for more advice on if this is possible.

4)   Second charge mortgage – a second charge mortgage is slightly different to remortgaging. The first mortgage is known as the ‘first charge’ and the new loan being the ‘second charge’. This is a separate loan meaning the payment of two separate mortgages each month, rather than changing the existing deal to release equity.

Not all lenders will approve a remortgage for debt consolidation purposes, so it is best to do some research. The lender will want to consider factors such as credit score and previous lending history.

This will help them to determine whether they think the borrower will be able to keep up with repayments. This is particularly important to lenders if the borrower is already in debt. It would be a good idea to check your credit score before lenders do. This allows you to have an idea of what information the lender will have seen.

It will still be possible to find a lender who will agree to reasonable terms and rates for a remortgage in most cases.

You can apply for a remortgage in much the same was a standard mortgage via:

  • The existing lender
  • Online mortgage broker
  • Mortgage adviser or mortgage broker
  • Bank or building society

For more information about remortgaging a property CLICK HERE.

Can I remortgage for debt consolidation?

Yes, in most cases it should be possible to secure a remortgage to consolidate debts.

There will however be various factors lenders will take into account before agreeing to a debt consolidation remortgage. Some of these include:

1.    Credit score – If there is a low credit score or bad credit history, a lender will consider this when deciding whether to approve a remortgage. Most of the time whether a person gets declined based on credit history will depend on the individual lender.

2.    Loan to Value (LTV) – the lender will check if the person has got enough equity in their home to release enough capital for the loan amount they are requesting.

3.    Employment status or income – a lender will want to see proof you will be able to afford the monthly repayments on your mortgage. This can come from monthly wages, benefits and various other forms of income. Certain people such as those who are self-employed may find it harder to demonstrate their income. A business owner will need to prove the business is financially viable long term if this is their main/only source of income.

4.    Debt-to-income (DTI) ratio – a debt-to-income ratio will compare how much a person earns per month to how much they owe due to various debts. Lenders can look at this to assess how much of the remortgage applicant’s monthly expenses already go towards paying off debts. The lower that the borrower’s DTI is, the more likely they will be approved for a remortgage.

An insurer will consider all of these factors. They will then decide whether or not to approve a remortgage deal for someone looking to reduce the amount of their debts. It is definitely a good idea to consider all of these factors before submitting an application.

It is important to remember that it may take some time to put a remortgage deal in place. If the debts owed are due repayment urgently, it is worth thinking about other strategies to pay. This is vital as a placeholder in the meantime until a decision on the remortgage has come through.

Is it a good idea to remortgage for debt consolidation?

Debt consolidation is as good a reason as any other to choose to remortgage. The important thing is deciding whether it is the correct choice for your own personal circumstances. There are many benefits to moving all of your debts into one place including:

  • It is simpler and easier to manage all debt if it is in one monthly payment, rather than several separate repayments
  • Can work out cheaper than other forms of personal loans
  • As a secured loan, the interest rates are usually lower than with unsecured loans

However, it is also important to consider some of the negatives as well before making any decisions.

  • As the loan is secured against the borrower’s home, it can put the property at greater risk of repossession if repayments are not consistently paid
  • The debt is now spread across a longer amount of time (the full mortgage term), which could lead to paying more in interest long term

It is also important to remember that there are other reasons that remortgaging can be beneficial generally, debts aside.

Often in a remortgage, it can be possible to lower monthly repayments. You can do this by switching to a ‘fixed-rate’ mortgage, meaning the amount paid is set for a fixed period of time. You can also switch to a lender with a lower base interest rate. Ideally the best outcome would be to find a deal that fits both of these criteria.

How much can you remortgage for debt consolidation?

The amount available for a remortgage will depend on the amount of equity you have in your property. There are two factors that will affect how large of a loan you will be able to secure.

1)   Affordability – your remortgage will need to fit within the lenders affordability criteria to make sure that you can afford the monthly repayments. All lenders will have their own calculations for affordability and that will take in to account your income and your expenditure. Most lenders will offer somewhere between 4 and 5 times income multiples as a rule.

2)   Loan to Value (LTV) – the lender will consider the amount of equity that you have in your current property before making any decisions. There will be lenders that have a cap or maximum loan to value that they are prepared to lend (e.g. 85% or 90%).

With debt consolidation mortgages, the amount you can get as an LTV remortgage will often be capped at 85% maximum. This can vary though depending on individual lenders.

Both of these factors will be taken into consideration before a lender will agree to a remortgage deal.

Is it worth remortgaging for debt consolidation?

If debt has built up considerably, it would be understandable to feel concerned or like there is no way out. This is usually not the case though. It is definitely worth looking into remortgaging as an option to get help get finances back under control

A remortgage will allow the borrower to have all their debt in one manageable monthly repayment. This is preferable to having to juggle several different payments and lenders. If they have struggled with several debts and repayment plans, this is an appealing option worth considering.

Of course there are other options for reducing debts, such as other secured personal loans or borrowing from friends/family members. If the amount of debt is extensive, a remortgage may be a better option for securing the larger amount of funds needed.

Best remortgage deals for debt consolidation

There will be many lenders across the UK offering mortgages that are specifically designed for debt consolidation. This could be through banks, building societies or other lenders. It is best to research across lenders to determine which one is the most appropriate choice. That way it is easy to see which can offer the best rates at a reasonable price.

A majority of the UK mainstream lenders will be able offer mortgage deals that work as loans to reduce debt. Some of these lenders include:

  • Royal Bank of Scotland (RBS)
  • Barclays
  • HSBC
  • Nationwide
  • Natwest
  • Santander

All of these lenders will have slightly different policies in regard to debt consolidation loans. It may be that one is more suitable for your needs than another one.

For example, some lenders may not have a limit for the amount that can be loaned. Other lenders will have caps for the amount able to be borrowed.

It is also important to consider that lenders may have minimum terms for borrowing. You will need to take this into account before agreeing to a remortgage with a particular lender. Certain lenders may also have other restrictions. This could be restrictions such as only offering to those with pre-existing current or savings accounts with them. This means this is definitely something worth looking into.

Debts aside, is possible to generally benefit from a remortgage. It is always worth looking at a lender’s Annual Percentage Rate (APR). Unlike looking at their interest rate alone, this will be inclusive of other charges, broker’s fees etc. Each lender will be slightly different so to secure the best possible remortgage deal it is important to compare these rates.

If unsure of which lender is the best option for your remortgage, speak to a mortgage specialist such as us. We can compare rates and find the best possible provider to help reduce debts. The right provider can help you to put all repayments in one easy to manage place.

90% LTV remortgage debt consolidation

A 90% LTV (Loan to Value) mortgage means that a lender is willing to remortgage your home, on the basis of a 10% deposit. The other 90% of the capital needed to buy being provided by the lender. With a remortgage, the equity you have in your home can be used in place of a deposit.

When remortgaging for debt consolidation purposes, it is not always possible to secure a 90% LTV mortgage. Often the amount able to be loaned will be capped at 85% maximum, depending on the individual lender.

Speak to a mortgage specialist to get an idea of what LTV amount may be accessible depending on your specific circumstances. It may be more difficult to access a 90% LTV remortgage. It is not necessarily impossible though as some lenders may still consider this.

Personal loan vs remortgage for debt consolidation

If looking to cut down the number of built-up debts, there are a few options to consider. One option will be a secured personal loan. The other main option is remortgaging against the equity in your current property, if already a homeowner.

There are positives and negatives for both of these options which we will highlight below:

Personal loans pros:

  • Unlike a remortgage, a personal loan is unlikely to be secured against your home meaning less risk of repossession.
  • Quicker application process: you are likely to be approved for a personal loan with less extensive questioning compared to a remortgage
  • The average loan term for repayment will be shorter (average around 1-5 years)

Personal loans cons:

  • The repayments will be more expensive due to a shorter amount of time to repay the loan
  • It may not be possible to loan as much on a personal basis as you can when remortgaging and using your existing property as equity

Remortgage pros:

  • Puts all debts in one easy to manage monthly payment rather than paying several different payments.
  • A good way of accessing a larger sum, if the amount of debt built up is considerable.
  • Cheaper monthly repayments than with a personal loan as the repayments will usually be spread over a longer time period.  

Remortgage cons:

  • Cannot access a remortgage if you don’t have a sufficient amount of equity in the property to cover the amount needed.
  • It is important to consider factors such as whether the mortgage is portable. This is vital if wanting to move house again in the future, as not all mortgages are movable to a new property.
  • Risk of property repossession if unable to keep up with the monthly repayments
  • Possibility of fees such as Early Repayment Charges (ERC) if exiting a mortgage term early and moving to another one. Whether these charges are in place will depend on individual providers. Speak to our experts or learn more here about how to find a mortgage with no ERCs.
  • Risk of paying more interest overall due to the debt being spread over a longer term (the full term of the mortgage).

How do I prove debt consolidation for remortgage?

Lenders will take several things into consideration when deciding whether to approve a remortgage.

One of the main things will be what the capital received will be used for. A remortgage is more likely to approved if considered for a serious financial measure, such as when you remortgage for debt consolidation. Reducing debt will be more highly considered compared to simply paying for a new car or holiday.

When remortgaging for to minimise debts, certain lenders may want to see evidence of the existing debt. They will want this with an assurance the debt is what the money is being used for. Lenders in all cases will want to look into an applicant’s finances, debt or not. 

Lenders will check things such as credit score and the amount of equity you hold in your current property. They may also look at whether the value of said property has increased since the initial mortgage was taken out. This could lead to a potentially better loan-to-value rate for the new mortgage.

What debts can I consolidate with a remortgage?

Homeowners will be able to consolidate most types of debt into a remortgage. Examples of debts that can be consolidated include:

  • Credit cards
  • Student loans
  • Overdrafts
  • Car finance agreements
  • Unsecured personal loans
  • Store cards

If a large amount of debt is accrued in one or more of these areas, a debt consolidation remortgage can be a good option. This will help to pay these debts off and transfer all debt into one simple monthly repayment. You can use your property as equity to secure the loan against.

There are several forms of poor credit that can lead to debt such as defaults or CCJs, but it is still possible to remortgage with these on your credit file.

I’m 50 should I remortgage for debt consolidation?

A person’s age shouldn’t prevent someone from being able to remortgage their home. As long as the reason for remortgaging your home is within reason most lenders should agree to a remortgage. Debt consolidation is as good a reason as any to remortgage.

There can be other restrictions or considerations that you may need to think about if trying to secure a loan later in life. These include:

1.    Proof of income after retirement – if retired or nearing retirement and requesting a loan, some lenders may wish to see proof of retirement income (e.g a pension plan) to know you will be able to afford the monthly repayments.

2.    Later life lending – there are other mortgage types such as equity release or lifetime mortgages available over the age of 55, that could be a better more cost-efficient option than a remortgage depending on the circumstances.

3.    Mortgages into retirement – are remortgage payments going to be affordable for you during retirement, depending on when your mortgage will come to an end

For further advice about getting a remortgage for debt consolidation, contact our team of mortgage experts. We will be able to advise on the best deals and lenders available for you.

Useful resources

Citizen’s Advice – Checking your options for getting out of debt

Gov.uk – Options for dealing with your debts

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