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Remortgage to Pay off Debt

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 18th March 2020 *

Refinancing debt with a remortgage can be a great way to reduce your monthly outgoings to a more manageable level and help you make your debt more manageable. 

Loans secured against a property through a mortgage are almost always the cheapest way to borrow, which is why we see so many cases where we have been able to save people loads of money in interest or dramatically reduce their regular monthly outgoings.

If you want to remortgage to pay off debt, read on for a comprehensive overview or click a link to jump ahead:

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How remortgaging works

When you remortgage you move from your current mortgage deal to another. You can choose to stay with the same lender or move to a new mortgage provider, your decision will usually depend on the deal you can get. Since your mortgage is likely to be your biggest financial commitment, it makes sense to review how much it is costing you on a fairly regular basis.

Over the course of a mortgage, usually 25 years, or more, it's likely you will want to remortgage to ensure you're not spending more than you absolutely have to. Remortgaging in order to refinance debt is one of the most popular reasons to start considering a remortgage, but the benefits of remortgaging can be far reaching.

When you remortgage, your old mortgage will be paid off as part of the arrangement and you will start making payments on the new mortgage. If you are remortgaging to pay off debt, these monthly amounts may increase in the short term but, if the plan makes sense, other debts will have been settled, leaving you with fewer costs to meet on a regular, on-going basis.

Can I remortgage to pay off debts?

Yes, you can, so long as you have enough equity in your property. Currently the maximum loan to value (LTV) is 90%, so if your property was worth £100k the total maximum borrowing, including your existing mortgage, would be £90k. So if your current mortgage is £85k, then the most you could consolidate in the current market would be £5k.

If your house was worth £200k and your current mortgage was £110k, then you could borrow up to £180k, so a further £70k would be available.

As an example, let’s say you have the following debts and enough equity in the property:

Type Balance Term Rate Monthly payment
Mortgage £120,000 22 years 4% £685
Card £6,500 - 22% £120
Loan £3,000 4 years 17% £87
Loan £12,500 6 years 15% £265
Total £139,300     £1,157

Consolidated into one mortgage (same rate and term):

Type Balance Term Rate Monthly payment
Mortgage £139,300 22 years 4% £795
Total saving       £362

NOTE: These figures are all approximate, an illustration showing exact figures specific to you will be given in the research & application stage of your enquiry, through an official Key Facts Illustration.

Saving refers to monthly outgoings – stretching unsecured debts over a longer term, despite the rate being much lower, could result in you paying more interest in total. 

This exercise is about minimising your outgoings to a more manageable level on a month to month basis. We used 4% as an indication but, depending on the equity you’ll have remaining in the property and the LTV, you could get a much lower rate than this. 

Check out our repayment tables for an idea of how your rate will affect your outgoings if you remortgage to pay off debt.

You could consider changing the term on the mortgage to suit your monthly budget and repay the total debt quicker or stretch it over an even longer period to reduce the cost further. The effect of this can be seen here:

Type Balance Term Rate Monthly payment
Mortgage £139,300 30 years 4% £665
Mortgage £139,300 25 years 4% £735
Mortgage £139,300 20 years 4% £845
Mortgage £139,300 15 years 4% £1,031

Qualifying for a debt consolidation remortgage

In order to get a remortgage to consolidate your debt, you’ll need to make the same type of application as for any remortgage, but with a lender that allows capital raising to pay off debts at the LTV you are looking for. There are many reasons for remortgaging and raising extra cash, and each lender will have a different opinion on the maximum they are prepared to lend – see the table in our remortgage guide.

Eligibility criteria for remortgages

Lenders all have their own way of assessing borrowers for affordability and eligibility. To pass the credit assessment you’ll need to be able to prove you can afford the new loan. Every lender uses different methods to assess your credit scoring; some are strict and demand you have a clean credit history while others will be more flexible.

There are lenders who will allow customers to remortgage to pay off debt even when they have adverse credit on their credit reports but you may need to pay higher rates, than you may be offered with a clean credit history.

We work with expert mortgage brokers who have access to the whole market and will help you find a lender who will offer you competitive rates, even if you have bad credit on your file. Make an enquiry for a free, no-obligation chat and we’ll match you with a broker with experience of helping other customers in similar circumstances.

Affordability is also calculated differently by each lender, but as a general rule, 4x your annual income is about the limit, although some lenders may be will to go to 5x, in certain circumstances.

Get in touch and ask an advisor to calculate what you might be able to borrow in terms of refinancing to pay off debt. We can then match you with the mortgage lender best suited to you, with competitive rates.

What other debt consolidation options are there?

A remortgage to pay off debt will almost always be the cheapest option, but if it’s not possible, for example circumstances mean leaving your current mortgage as it is would be the best option (because you have an amazing rate), then you could consolidate the debt on a secured loan, or even on an unsecured loan.

Secured loan rates tend to be much higher than mortgage rates, with rates ranging anywhere from 7%-30%+, depending on your credit score. The upside of secured loans is that you can take them over as long a term possible and, in theory, borrow as much as you like (within limits of LTV and affordability).

Unsecured loan rates can be as high if not higher than secured, from 6% up to sometimes over 50%, but you are usually limited to a maximum term of 7 years and maximum borrowing of £25k – this means if you are consolidating a large amount of debt then the repayments are likely to be much higher than for a longer-term on a secured loan or mortgage.

Speak to an expert

If you'd like to speak to one of the experts we work with to find out what your options might be for consolidating debt or remortgaging to pay off your debt, make an enquiry or call 0808 189 2301. 

Updated: 18th March 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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