How can you remortgage a house to pay off debts?
It’s possible to remortgage to help clear your debt by using the equity you have in your home to increase your mortgage. This will leave you with additional funds which can be used to pay off debts, such as credit cards or a car loan. By taking out a remortgage with additional borrowing and paying off other debt it can help you to reduce your overall outgoings, particularly if you’re subject to high interest rates on your debts.
However, by consolidating this can mean you end up paying off the debts over a longer term on your mortgage, and if this is the case you may pay more interest in the long run. All of these considerations should be taken into account when deciding whether remortgaging for debt consolidation is the right move for you.
When remortgaging with additional borrowing might be a good idea
It could be a good option for you if mortgage rates are low and you have plenty of equity in your property. If you are eligible for a low remortgage rate, then your monthly repayments may work out to be less than if you chose to take out a personal loan.
Remortgaging in this way also typically allows you to borrow a higher amount than if you were to take out an unsecured loan. While you may struggle to get a loan from the bank for larger amounts, e.g over £25,000, it could be easier if you raise the money by remortgaging.
It’s also an option to consider if you want to pay back your loan over a longer period of time. With traditional personal loans, you’ll usually be expected to pay it back within five to seven years - but with a remortgage, the repayment term can be twenty years or more depending on your circumstances.
When it may be a bad idea
When you borrow against your home, you’re increasing the size of your secured debt and reducing the amount of equity in your home. If you are unable to pay your mortgage or secured debt then the lender can repossess your property. Borrowing smaller amounts on a remortgage may also be less cost effective than using a credit card or loan, especially if there are fees involved in arranging your new mortgage deal.
Things to consider before taking out a remortgage to clear debt
While it might sound like a good idea to just have one debt - your mortgage - that needs to be paid every month, it’s also very important to think carefully about the risks. There is a possibility that you could find yourself in trouble if you’re unable to keep up with the higher payments.
Here are the key things you need to think about before opting to remortgage with additional borrowing:
- Your home could be repossessed if you’re unable to keep up your monthly repayments. Increasing the amount you need to pay for your mortgage every month could put your home at risk, so it’s important to have a solid plan of how you’ll pay the mortgage, including contingencies in case your circumstances change and you are unable to keep up with payments.
- The total amount you end up paying back could be higher. Mortgage interest rates are typically lower than interest rates on unsecured debts - but the terms are usually much longer. That means in the long-term you could end up paying more if you remortgage with the goal of paying off debts.
- It may be cheaper to go down another route. Look into 0% balance transfer interest credit cards or personal loans, both of which can offer lower-cost ways of clearing your debt - and won’t put your home at risk.
Questions to ask yourself
An expert mortgage adviser, like the team at L&C, can offer you advice on whether remortgaging to clear debt is the right option for you. However, it’s also a good idea to ask yourself a few questions to help to determine if it’s the right route, based on your personal circumstances.
You might want to consider the following questions:
- How will remortgaging improve your situation?
- How much will you need to pay monthly if you remortgage versus other options for clearing the debt?
- How much more will you pay in interest if you add existing debts to your mortgage?
- How much will you need to pay in fees to arrange your remortgage?
Eligibility criteria for a remortgage for debt consolidation
As with any other type of mortgage, lenders will assess your application based on a variety of different criteria. This includes your affordability, as well as things like your credit history, the value of your property, how much you want to borrow, and how you’ve accrued the debt you want to consolidate. They’ll also want to know what you plan to do with the money.
Remember that usually the lower your loan to value (LTV) ratio, the better the mortgage deals that are available to you. So if additional borrowing on your mortgage pushes you into the next LTV bracket, it may make it more expensive for you to remortgage.
How much can you borrow?
The amount you can remortgage for is entirely at your lender’s discretion. For example, some lenders may allow you to borrow up to 90% of the value of your property, while others will cap it at less than that.
Where to get extra support
If you think a remortgage to pay off debt might be the right move for you, then get in touch with our team at L&C. Our team of friendly advisers are always happy to help you, offering free, expert advice to help you find the best remortgage deal for you.
Need additional support with your debt? Contact the following organisations:
