Should You Remortgage to Pay Off Credit Cards and Loans? - Clear Finance | Financial Services based in Doncaster

If you have outstanding credit cards, personal loans or other borrowing, you may have considered whether remortgaging your home could be used to consolidate those debts into one monthly payment.

For some homeowners, raising additional money through a mortgage can reduce their immediate monthly outgoings. However, a lower monthly payment doesn’t necessarily mean you’ll pay less overall, and turning unsecured borrowing into debt secured against your home introduces additional risks.

So, what should you consider before remortgaging to consolidate debt?

How Does Debt Consolidation Through a Mortgage Work?

Debt consolidation generally involves combining several existing debts into one.

If you have sufficient equity in your property, it may be possible to remortgage for a higher amount and use the additional funds to repay some or all of your existing debts.

For example, instead of separately paying a mortgage, credit card and personal loan each month, the additional borrowing could become part of your mortgage.

This can make monthly finances appear simpler, but there are several important factors to consider.

Could It Reduce Your Monthly Payments?

Potentially.

Credit cards and unsecured loans can have relatively high interest rates and are often repaid over shorter periods. Mortgage borrowing is commonly spread over a much longer term.

Extending the repayment period can therefore result in a lower monthly payment.

However, focusing solely on the monthly figure can be misleading.

You Could Pay More Interest Overall

Although mortgage interest rates may be lower than rates charged on some unsecured borrowing, mortgages are generally repaid over many years.

Moving a debt that might otherwise have been cleared within a few years onto a mortgage lasting 15, 20 or even 25 years could mean paying interest on that borrowing for considerably longer.

The total amount repayable should therefore be considered alongside any reduction in monthly payments.

Your Unsecured Debt Becomes Secured Against Your Home

This is one of the most important considerations.

Credit cards and most personal loans are normally unsecured. Mortgage borrowing, however, is secured against your property.

By using mortgage borrowing to repay unsecured debts, you are effectively moving that borrowing onto debt secured against your home.

If you subsequently cannot maintain the required mortgage repayments, your home could be at risk of repossession.

There May Be Additional Costs

Remortgaging isn’t necessarily free.

Depending on your existing mortgage and the new product, there could be costs such as:

Early repayment charges
Arrangement or product fees
Valuation costs
Legal fees
Broker fees where applicable

These costs need to be taken into account when considering whether remortgaging for debt consolidation is appropriate.

Will You Qualify for the Additional Borrowing?

Having equity in your property doesn’t automatically mean you can borrow against all of it.

A mortgage lender will normally carry out affordability and credit assessments and consider factors such as your income, expenditure, existing borrowing, credit history and the value of your property.

The amount available will therefore depend on your individual circumstances and the lender’s criteria.

What Happens to Your Credit Cards Afterwards?

Paying off credit cards through a remortgage doesn’t necessarily address the reason the balances accumulated in the first place.

If the cards are subsequently used again, you could end up with the increased mortgage and new credit card balances.

Before consolidating debts, it can therefore be sensible to look at your wider finances and consider how borrowing will be managed going forward.

Is Remortgaging the Only Option?

Not necessarily.

Depending on your circumstances, there may be alternatives to a full remortgage. These could include changing your existing mortgage arrangements, further borrowing from your current lender or other forms of finance.

The suitability, costs and risks can differ considerably, so it is important to consider the available options rather than focusing solely on the possibility of reducing your monthly payment.

Speak to Clear Finance

Debt consolidation through a mortgage can appear attractive, particularly when you’re juggling several monthly repayments. However, it is important to understand both the immediate and longer-term financial implications.

Clear Finance can look at your individual circumstances, existing borrowing and mortgage arrangements and explain the options that may be available.

If you’re considering remortgaging to repay credit cards or loans, contact Clear Finance to discuss your circumstances before making any decisions.

*Think carefully before securing other debts against your home. Your home may be repossessed if you do not.

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