Are you thinking of remortgaging to pay off debts? This is a common way for people to get out of debt and can be a great option if you are in the right position. However, there are some things that you need to consider before making this decision.

In this article on RemortgageRefinancing an existing mortgage with a new mortgage. House to Pay off Debts, we will help you to understand how remortgaging works and what you should look at when considering whether or not to use this method to get rid of your debts. We will give you tips on making sure that you choose the best deal possible so that you don’t end up paying more than you have to.

In this helpful guide on remortgaging to pay off debts, we will also answer frequently asked questions such as can you remortgage to pay off debt, should you use your mortgage to pay off the debts etc.

If you want to know more about remortgaging, please read the related blogs here.

Can I remortgage to pay off debt?

Do you remember when you arranged your current mortgage? A lot may have changed since then:

• Your home is likely to have increased in value – according to statistics in June 2020, UK house price growth is up 2.4% on the year and has increased from 1.6% at the start of 2020;
• If you have any kind of repayment mortgage, your monthly instalments have been taking care of both interest and capital repayments – you owe less now than you did at the beginning;
• The rise in house prices, together with the reducing balance of your current mortgage, means that the loan-to-value (LTV) ratio between your outstanding loan and the value of your home is lower now than when you first arranged your mortgage; and
• New mortgage products are likely to have come onto the market – potentially offering improved terms and conditions, along with more competitive rates of interest.

You can remortgage

All of these changes may help to create the conditions you need to remortgage your home.

A remortgage is simply swapping your existing mortgage for a new one – either with the same lender or a new provider – without leaving your current home.

Remortgaging remains popular and widespread among borrowers. Statistics published by the Bank of England indicate that more than 52,000 remortgage applications were granted to individual customers just in February 2020 alone.

Two of the most common reasons for remortgaging are:

• Get a more competitive deal than your current mortgage; or
• Remortgage to release equityThe difference between the value of the property and the amo... from your home to consolidate other debts and loans you may have acquired in one place under the same umbrella.

A remortgage takes advantage of the likelihood of your having increased your equity in your home and allows you to borrow more on the strength of that increase.

Remortgage for debt consolidationConsolidating multiple debts into one loan, often using the ...

By swapping your existing mortgage for a new one, you can include other debts, loans, and lines of credit within the new remortgage you pay back.

Consolidating your debts in this way means that they are kept all up together under the same umbrella. That makes them easier to manage, of course, and there is less chance of your forgetting or overlooking any one debt repayment when it falls due – an omission that would be almost certain to damage your credit rating and, so, make borrowing that much more difficult in the future.

A remortgage for debt consolidation is a new mortgage, of course, so any lender – your existing mortgage company or a new one – will need to make renewed checks as to the affordability of the loan, your past experience in managing debt, and your current credit history.

Unlike the time you applied for your first mortgage; however, you have the distinct advantage of being able to demonstrate to the remortgage lender that you have kept up the instalments on your mortgage and made the repayments when they fell due. If you have been that responsible in the way you managed a mortgage, any new lender may recognise you as the type of reliable borrower they want to encourage by offering a competitive rate of interest.

Hopefully, that financial responsibility in the way you have managed other debts and borrowing is also reflected in your current credit rating – although a less than perfect credit score is unlikely to be a barrier to your securing a remortgage (perhaps on slightly less favourable terms).

Securing such a competitive rate of interest on the consolidated debts you incorporate into your remortgage, of course, is likely to make your repayment of those debts, too, cheaper than might otherwise have been.

The rate of interest you are offered might also be influenced by the new loan-to-value (LTV) of the new borrowing relating to the value of your home. The lender will need an up-to-date valuation of your home, therefore, and this is a cost that you must be prepared to bear.

Whatever the terms, conditions, and rate of interest you may be offered on your remortgage, it is essential to remember that it is still a mortgage – you have swapped your previous mortgage for an alternative replacement. The remortgage, too, is secured against your home. Just as before, therefore, if you default on the repayment instalments of your remortgage, you risk losing your home.

What next?

If you are considering consolidating your debts under a remortgage, seeking the advice of a mortgage broker may be the next step. They can help you assess the most cost-effective way of repaying your debts while matching you to the most suitable lender for your own unique circumstances.

FAQs- Can I remortgage to pay off debt

What is debt consolidation?

Debt consolidation is a term used when multiple loans are taken out to consolidate payments. This allows you to spread the amount of money you owe over a longer period of time, which reduces the total amount you have to pay each month. It’s not always possible to take out a single loan to cover all of your debts, but it is often possible to combine several smaller loans into one larger loan.

Should I consolidate my debt?

It depends on your personal circumstances. You should only consider taking out a debt consolidation loan if you are struggling with paying back your debts. Debt consolidation can help you manage your finances better and get rid of unnecessary monthly bills. However, there are many different types of debt consolidation loans available and choosing the right one for you could be tricky.

It is better to contact an expert advisor before making a decision about whether or not to consolidate your debt. A professional adviser will be able to give you more information about the benefits and drawbacks of various options.

Can I borrow more on my mortgage to pay off debt?

Yes, you can remortgage to increase the capital and pay off your debts, but you may need to consider some other factors. At present, the maximum loan-to-value LTV ratio for a remortgage is 90% with the mortgage lenders.

Should I use my mortgage to pay off other debts?

It depends on your current situation. Taking a mortgage or loan to pay off the other debts if you are struggling with monthly repayments should be your last option. You could end up paying more money over the long term. It will be better to contact an expert broker who can help you with the mortgage application.

Is it better to pay off debt or make monthly payments?

Debt consolidation loans are designed to reduce your total amount of monthly payment so that you can save money. This means you’ll get out of debt faster and save money in the long run. However, if you choose to consolidate all your debts at once, you won’t see any immediate savings.

How can I get rid of my personal loan debt?

You can eliminate your personal loan debt through various methods. One of them is to refinance your existing personal loan. Refinancing your personal loan allows you to lower your interest rates and extend the length of time you repay your debt. We would suggest you contact a specialist lending broker before taking starting any loan application. A specialist lending broker may be able to help you with the most suitable deals.

Can I mortgage to pay off my credit card debt?

Yes, you can get a mortgage to clear your credit card debt, but you need to contact an expert financial adviser, as it will create another outstanding debt on your account.