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Debt Consolidation Mortgage

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Did you know that you can consolidate your debts through a debt consolidation mortgage?

We’re not talking about bad credit debts here but your everyday payments that mount up on things such as a credit card debt or personal loan. 

When debt is holding you back choosing to take out a debt consolidation mortgage could help to improve your situation and can have it’s benefits.

But is it right for you?

In this article we’ll cover the questions you might have with regards to taking out a debt consolidation mortgage.

What is a debt consolidation mortgage?

In simple terms it’s an effective way to consolidate your debts into easy monthly payments and save money. 

It is a single loan sought by using the available equity you hold in your property. That loan, sometimes referred to as a debt consolidation remortgage, is agreed for the purposes of paying off debts such as:

  • Credit cards
  • Personal Loans
  • Payday loans
  • Overdrafts

The intention is that you could reduce your overall payments by simplifying multiple outgoings into one monthly payment. 

By doing so you can also save money as you will be paying less overall.

Debt consolidation with a mortgage should not be taken lightly. Mortgages are paid over a period of time, by consolidating your debts under your mortgage it enables monthly payments to become a lot smaller and easier to manage. However, you will be paying more interest over the duration of the loan.

You should also bear in mind that your home will be placed at risk as your loans will be secured against your property. Therefore, if you fail to meet your future payments your home will be used as collateral. 

Taking careful consideration over whether your circumstances would be better taken under another debt consolidation vs. mortgage refinancing. 

You will either increase your monthly payments or the length of your term.

How does a debt consolidation mortgage work?

Applying for a remortgage under debt consolidation is similar to applying for a any other mortgage. You will be assessed initially on your affordability and credit checks. 

Lenders will then look at other criteria such as:

  • The value of your property
  • What percentage of your home you own outright
  • How much you want to borrow compared to your income
  • If you have bad credit

Each lender will assess based on their own criteria so your individual circumstances need to be placed with the right lender. 

The big different between applying for a debt consolidation mortgage and a straightforward mortgage/remortgage is that your lender will more often than not require you to commit to repaying your debts. 

In short they may require you to sign a formal agreement where you commit to repay your debts in full on completion of the advance, before they agree to lend. 

How much can I borrow?

When applying for a debt consolidation mortgage an important factor in determining how much you can borrow depends on how much equity you have built up in your property. 

The usual borrowing limits are capped at around 4x your annual income. However, this will vary between lenders and is dependent on the product are considering. 

Lenders will also consider how much they are willing to loan based on any bad credit history and the severity of the issues i.e. payment defaults or bankruptcy. This will also impact decisions on whether they will approve a debt consolidation mortgage. 

Put simply the amount you can borrow will depend on:

  • Equity 
  • Credit history
  • Affordability 

It’s also worth noting that your debt-to-income ratio (how much debt you have in relation to what you earn) may also be factored in, and in some cases decisions may be based on how your debts have been accrued. 

Is it a good idea to consolidate my debts by remortgaging?

As with every mortgage product there are pros and cons to them and it will mostly come down to whether the options are right for you based on your individual circumstances. 

For instance, in this situation, taking out a debt consolidation mortgage may not be a good idea if you haven’t built up much equity in your property as it could prove more costly. 

Taking out a debt consolidation mortgage is not for everyone and should be a carefully considered decision. 

It could be a good idea if:

  • You have built up a good amount of equity
  • Your current mortgage term has expired and your on higher rates
  • Your monthly payments will be lower and easier to manage

However it may not be a good idea if:

  • You have little equity built up in your property
  • You are still within your fixed term agreement and will incur early repayment charges
  • You don’t want to put your home at risk (as your loans will be secured against your property)
  • There may be substantial additional costs and fees involved

Either way, if you choose to apply for a debt consolidation mortgage you will need to have strong financial discipline in order to not rack up any additional debts and risk your finances spiralling out of control. 

Speaking to an experienced mortgage broker who has expertise in this area could help you understand your options and whether this would be the right course of action for you or whether there are other options you should consider such as debt management plans or second charge mortgages. 

Who offers debt consolidation mortgages?

There are a number of lenders out there who offer debt consolidation remortgage products including many mainstream lenders such as:

  • Natwest
  • Nationwide
  • HSBC
  • Barclays
  • Halifax

As we’ve said before though, bear in mind that lenders will have their own individual criteria that you will be assessed on. 

There are also specialist lenders within the market who offer debt consolidation products which can be accessed via a mortgage broker. 

Working with a mortgage broker

A mortgage broker could be your biggest asset when make a decision on debt consolidation. With so many variables to consider and varying lender criteria a broker is in the best position to assess your circumstances and place you with a lender. They know their lenders criteria inside out and have access to whole of market lenders.

They can also help you answer any questions you may have around:

  • What interest rates can you get
  • How long the term length will be
  • What your monthly payments would look like
  • Whether is will be cheaper overall
  • What additional fees and costs you may incur

They will also be able to advise of any alternative products that may be more suitable. 

Contact us at Online Mortgage Guru on 0345 3669799 or email us via info@theonlinemortgageguru.co.uk and we will put you in touch with a suitable specialist to handle your enquiry.  

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