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What Is A Debt Consolidation Mortgage?

A debt consolidation mortgage is a type of mortgage where you can use the value of your property to help pay off your debts and is typically a remortgage.

Essentially you are taking out a new loan to pay off several different debts, such as paying off a loan, a credit card bill or another type of loan. Each loan will have different interest rates and repayments; keeping up with them can be stressful and cost more money, and taking out a mortgage to consolidate debts can be an excellent solution.

Mortgages are typically far lower interest than any other borrowing product, meaning you can include all obligations in one monthly payment. For some homeowners, a debt consolidation mortgage can be an option to help tidy up their finances. However, they can come with risks and are not suited to everyone. Here is what you need to know:

So, what is a debt consolidation mortgage?

This type of remortgage lets you use the value of your property to pay off any debts – to settle what you owe elsewhere and then make repayments on a single mortgage deal.

For example: Should you owe a personal loan of £15,000 at 4.9% APR over 48 months and owe £10,000 on a credit card at 21.9%, you will pay back interest of £8,107. However, taking out a 10-year fixed rate mortgage at 4.5% for £25,000 would cost you £6,092 in interest.

However, should you take out a longer loan than your current repayment, you will pay longer in the longer term, e.g. for the same credit owed above but with a further mortgage release of £25,000 taken out at 4.5% over 20 years would cost £12,959 in interest.

In simple terms, debt consolidation mortgages can streamline your payments and reduce the overall debt. However, they are not for everyone, which we will explain later.

How Do Debt Consolidation Mortgages Work?

Debt consolidation mortgages tend to work in three ways: a full remortgage, a second charge, or a further advance.

With a straight debt consolidation mortgage, you are essentially taking out one loan against the equity in your home to repay other debts and using this remortgage to repay everything else, including loans, car finance and credit cards.

To qualify, you will be assessed for your:

  • How much do you wish to borrow?

  • The value of your property.

  • Your credit rating and current liabilities.

  • How much equity is in your home?

  • Your average income or annual salary.

The second option is a second-charge mortgage. Rather than remortgaging completely, you can get something known as a second-charge mortgage. This lets you take out a second loan secured against your property. In other words, you'll have two mortgages on one property. This may be because you already have a great interest rate on your current mortgage with some time to run. But with a second-charge mortgage, you will release equity to settle your finances. The difference is in the way you make repayments. A second charge won't affect your existing mortgage repayments, but it will add a second repayment alongside your current monthly repayment.

Finally, there is a further advance where you borrow extra cash from your current lender on the same mortgage deal. It can free up cash immediately, but it will mean you'll have more to pay back in the long run.

Can you get a debt consolidation mortgage with bad credit?

Yes, you can get a debt consolidation mortgage with bad credit in some circumstances. These mortgages are usually easier to get than other debt consolidation loans, as you have the property to put down as security. But the decision is ultimately up to the lender.

Should I get a debt consolidation mortgage?

But there are pros and cons you need to consider, and you should think carefully before securing any other debts onto your mortgage.

We have discussed the benefits, but there are essential things to be aware of, such as you are putting your home at risk. Any loan secured against your property means that you risk your home being repossessed if you cannot make the repayments.

Furthermore, mortgages can cost more if you are paying for longer, and you may end up paying more in the long run, depending on your rates.

At Greenshoots Financial, we talk you through everything you need about debt consolidation mortgages – from your options to whether it's right for you. Furthermore, if you're struggling with debt, our advice is to always speak to a professional such as Citizens Advice or the Money Advice Trust to find your best options.

Karen Phillips, our Debt Consolidation Expert, said:

"I leave no stone unturned in finding a financial solution that best fits my client's needs and finances. So many people are struggling with the cost of living crisis, and I treat my customers like I would any of my family. I give the support necessary to commit to a full mortgage review so that the best solution can be found and tailored to suit each client appropriate for their family finances.

One of the recent clients that I helped refinance their mortgage and all of their debts would have potentially lost their home if they had not reached out to get help with restructuring the debt and putting them on a more manageable mortgage solution tailored to their finances and their budget.

Debt consolidation may not be suitable for everyone, but I am happy to look over any case to give advice and tailor what would be best for the client. This comes from over 30 years of experience in the finance industry, over 20 years in mortgages and protection."

Feel free to contact our mortgage advisor Karen at Greenshoots if you need advice or even an initial consultation, as it sometimes helps to talk it over with an expert. However, there is no obligation at all; Karen and all at Greenshoots Financial are just passionate about assisting clients to save money and alleviate any worries and stresses where possible.


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