Remortgaging to pay off debt: Everything you should know

If you're a homeowner, remortgaging can sometimes help to improve your situation, but there are downsides too.

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Remortgaging is replacing your existing mortgage with a new one. It often involves changing products with your existing lender, or switching to another mortgage lender completely.

We’ve compiled all that you should need to know about remortgaging for debt consolidation on a basic level here, but it’s always advisable to get expert debt advice before going ahead.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

Is it a good idea?

While remortgaging to consolidate debt may seem like a good idea, especially if your property has gone up significantly in value recently, you’re still taking on a bigger loan in reality, paying more in repayments each month and building on the interest that you owe.

In some cases, if you can get a low enough rate, a remortgage could work out better for you than a loan in order to release money to pay off debts, it all depends on your circumstances.

But there’s no getting away from the fact that remortgaging to release funds and pay them off essentially turns them into a secured product (unlike an unsecured loan), which means you are bringing your property into the equation.

In this situation, if you cannot keep up with repayments, your lender could repossess your property and you will likely lose your home.

Things to consider before doing it

As we’ve mentioned above, remortgaging to consolidate debt may feel like easy money, but this isn’t always the case.

When remortgaging, a lender will look at your existing product and the value of your home.

Based on your application and credit file, the lender will then decide how much it thinks you can afford to repay each month and what it can lend.

If you are releasing cash to pay off debts you will need to borrow more than your outstanding mortgage. This means a bigger loan and bigger repayments.

Yes, it’s true that you may be able to pay off your debts, but you’ll be left with higher remortgage payments in the long run.

So can you realistically afford this and work out a budget in order to stick to it?

Pros

  • Can reduce your outgoings.
  • Gives structure to your payments and allows you to feel in control.
  • Simplifies financial responsibility into one monthly commitment, reducing the chance of forgetting to pay different bills.

Cons

But it’s also important to be aware of the downsides too.

  • You’re increasing the size of your secured debt and the repayments will be higher compared to a personal loan.
  • You may also have to pay product, legal and valuation fees as an add-on.
  • If you struggle to keep up with these repayments it can affect your credit rating, or worse, your house may be repossessed.

What are the alternatives?

A remortgage isn’t the only option to help you consolidate debt.

First, review your finances

Look at your income and expenditure to see if you can budget better. We recommend first paying off priority debts, which aren’t always the biggest but are the most important in terms of bigger consequences for missed payments.

Personal loans

Rates have tended to drop more recently, with the application process less intense than a remortgage. This is because it’s based on your credit rating rather than strict affordability criteria.

Balance transfer credit cards

This would allow you to pay off an old card and move the balance to a new provider with an interest-free introductory offer. Do bear in mind that there are penalties for missed payments, however. The card will also move to a higher APR at the end of the term.

Where to get help

If you are in debt your best bet is to speak to an FCA regulated mortgage adviser who can give you independent advice and recommend the best remortgage deals for you.

They can also help you put together your application if you did decide to remortgage to give you the best chance of success.

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