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Should You Take Out A Debt Consolidation Mortgage? Your Need-To-Know Pros & Cons

Updated: May 18, 2023

If you’ve got outstanding debt on loans, credit cards, store credit or car finance – or maybe all of these! – and you’re thinking of clearing it with capital from your property, this post is for you.

Having debt in lots of different areas, meaning multiple monthly payments, can feel overwhelming, so the thought of taking money out your house to pay it off may seem like a simple solution.

But, is it the most suitable answer for you? This handy post looks at the plus and minus points of consolidating existing debt into your mortgage, and talks you though how the process works.

Or, scroll down for more information on whether it’ll save you money, how much you could borrow with a debt consolidation mortgage, interest rates vs interest costs and more!

What is debt consolidation?

Let’s start with the basics. Debt consolidation is simply the process of combining multiple debts – like credit cards, loans and store finance – into a single payment.

This can be done by taking out an unsecured loan (a personal loan from a bank or other lender) to the value of your existing debts, then using it to pay them off.

You can also do this through a secured loan, borrowing money against your property and adding it onto your current mortgage balance.

The goal of debt consolidation is to simplify your finances, and potentially lower your interest rates and monthly payments.

How does a debt consolidation mortgage work?

Essentially, you’ll be taking out some of the capital in your property as a lump sum to clear those existing debts.

How it works in practise is that you’ll borrow money on top of your existing mortgage, which will then be secured against your property and paid back in a single monthly repayment as a new mortgage balance.

As the additional money borrowed is spread across the term of the mortgage at your new interest rate, it could result in you paying less per month than if you kept those existing unsecured debts.

Usually people look to consolidate debt with their mortgage when their current fixed rate deal is up for renewal. That way, you can remortgage onto a new fixed rate and pay off your debts at the same time.

The new mortgage could be with a different bank or building society, or with your current lender – your Beewise mortgage advisor will shop around on your behalf to make sure you the most suitable new deal.

After all, saving money and stress is the whole point of a debt consolidation mortgage, so we recommend leaving it to the experts! Click here to read more on why you should use a mortgage advisor.

While you can remortgage to borrow additional money at any time, some mortgages do have early repayment charges. Give us a call on 01934 204 841 or email your local Beewise advisor to find out if this is the right option for you, or if you could borrow more from your current provider.

Just to note, while you could save money short term, you could pay back more over the long term – that’s something we’ll make sure to check for you though.

Can anyone get a debt consolidation mortgage?

Just like with any mortgage, borrowing money means you’ll have to meet certain criteria. Luckily, we work with lots of banks and building societies, so can put you with the most suitable lender!

One of the first things we’ll look at on their behalf is how much extra you’ll want to borrow, and what percentage of your property value you’ll be borrowing overall.

Most banks and building societies will only lend up to 80% of your property value when it comes to a debt consolidation remortgage, but there are a few that will go up to 85%.

Plus, different lenders have different criteria when it comes to paying back a Help to Buy equity loan, with some not classing this in the same category as credit cards and personal debt, allowing you to borrow more.

Don’t worry though – we’ll do the behind-the-scenes calculations and sourcing for you, letting you know exactly how much you can borrow, and working out the most suitable monthly repayments!

If you’re concerned you might not qualify for a debt consolidation mortgage as you’ve got less-than perfect credit due to issues in the past, we could still potentially help.

The whole point of consolidating debt is to help you get your finances under control and hopefully save you money, so there are definitely lenders out there that could be a fit for you.

Plus, clearing those monthly repayments for credit cards, finance or store credit means your monthly spending could be reduced, allowing for additional borrowing towards that new mortgage.

Is there a minimum or maximum amount of debt I can consolidate?

While there’s no set maximum figure you can consolidate into a mortgage, some lenders do have criteria around the amount of debt owed versus your current income.

However, this isn’t true for all lenders, and is something your local Beewise mortgage advisor can calculate for you!

The amount you can borrow towards paying off debt could also depend on your property value, as mentioned before, and general affordability.

When it comes to working out how much you can borrow for a mortgage, regardless of whether it’s for debt consolidation, banks and building societies all have their own set of criteria, so it will vary depending on the lender.

That’s why it’s important to use a Beewise advisor, as we’ll calculate figures across the mortgage market, as well as finding you the most suitable new deal!

There’s also no minimum amount you can borrow to clear debt, so in theory you could pay off a £500 credit card debt, or that monthly sofa repayment you want out of the way.

However, with smaller amounts of debt it can cost more to add it onto your mortgage. This is because you’ll end up repaying it across the whole term of the mortgage, paying a lot more interest.

But, we’ll give tailored advice for each individual situation, and can recommend which debts to keep and which to clear when it comes to a debt consolidation mortgage.

3 disadvantages of consolidating debt with your mortgage

While debt consolidation can be a great option for some people, it's not the right choice for everyone. Here’s three potential drawbacks you might want to consider –

  • It’s not always the cheapest alternative

Interest rates for a mortgage may seem lower than those for a loan, but it’s about total interest costs over the time you borrow that money for.

Switching your credit card balances onto one with a 0% balance could be a better choice, or opting for a shorter term personal loan to consolidate your current debts.

Or, overpaying on your existing debt to clear it down quicker might more suitable. Give us a call on 01934 204 841 and we’ll be happy to chat it through with you!

  • You’ll be securing existing debt against your property

Car finance, store credit and credit cards are all unsecured debt, meaning if you can’t repay it, the lender will have to pursue methods such as debt collection to get their money back.

However, a mortgage is a loan secured against your property, so if you were unable to make the monthly repayments, it could lead to your property being repossessed.

  • You’ll need to change your borrowing ways to prevent further debt building up

Debt consolidation is a great way to get your finances in order, but if you take on new debt, you could end up in a worse financial situation than you started in. Click here for a handy post on managing your money.

3 benefits of consolidating debt with your mortgage

It’s not all doom and gloom, as a debt consolidation mortgage can be ideal for sorting out your money matters! Here’s our three top advantages –

  • You could save money

In the right circumstances, consolidating debts with your mortgage can mean paying less interest, and lower monthly outgoings.

It’s all about getting that balance between repaying enough to make it worthwhile, and not so much that you’re struggling to live within your means. Something your Beewise mortgage advisor will help you with!

  • Peace of mind

Juggling multiple direct debits for different debts can be extremely overwhelming, and only being able to meet the minimum monthly payments might feel like you’re never going to clear the balance.

While consolidating debts with your mortgage doesn’t make them go away, the knowledge you’re simplifying your finances with a single monthly payment can take a huge weight off.

  • A clean financial slate

If you’ve incurred debt over a period of time due to long-term sickness or redundancy, or maybe even saving for a wedding, this can feel like a fresh start.

Cut up those credit cards, make a pinky promise with yourself to only spend what you’ve got saved, then put a plan in place to cover your bills if you were unable to work.

Did you know that Beewise are also personal protection experts? We can sort the most suitable insurance policy to cover your salary – check out our handy blog post on the importance of critical illness cover and income protection for more info!

How easy is it to get a debt consolidation mortgage?

With the help of your local Beewise mortgage advisor, it’s simple! Give us a call on 01934 204 841 or email us to arrange an initial chat, then we’ll collect some documents and calculate your options.

We’ll be on hand from start to finish to manage the whole process for you, plus we offer evening and weekend appointments to fit your busy schedule.

So if you’ve been worrying about your finances, considering a debt consolidation mortgage, or just want to talk through your options we’re here to take away the stress and save you time and money.

Is getting a debt consolidation mortgage right for me?

Without going through your individual situation it’s hard to say for sure, but as award-winning mortgage advisors you can trust Beewise will give you the most suitable advice!

As well as working out those figures, costs and potential monthly payments, we’re experts on the current mortgage market.

So, we’ll give advice tailored to you, taking into account your current and future circumstances, and talk you through your options to make sure you’re happy.

To discuss debt consolidation mortgages further, call 01934 204 841 or email your local Beewise mortgage advisor to arrange an initial chat, with evening and weekend appointments available. And, check out our 215+ 5 star Google reviews! Voted Best Mortgage Office in the UK 2022, you’re in safe hands with Beewise FS Ltd.

Looking for more expert mortgage advice? Check out these other helpful blog posts!

Think carefully before securing other debts against your home – by consolidating your debts into a mortgage, you may be required to pay more over the entire term than you would with your existing debt, which could increase the amount of interest payable overall.

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