How a debt consolidation remortgage works
Suppose you owe money on a mortgage plus several cards and a loan. A consolidation remortgage takes a new, larger mortgage; the new lender repays your old mortgage, and the extra funds released clear the other debts on completion. From that point you make one payment, to one lender, at mortgage rates.
For it to work, three things need to line up:
- Enough equity in your home to absorb the extra borrowing within the lender's loan-to-value limits
- Affordability - the new, larger mortgage payment must fit your income under the lender's checks
- A lender whose rules accept debt consolidation as a purpose, at your level of borrowing
Lenders vary widely on consolidation: some cap the amount of debt you can clear, some restrict the loan-to-value, and some decline the purpose altogether. Whole-of-market access matters more here than on a straightforward remortgage.
When consolidating makes sense
- Your monthly debt payments have become unmanageable and a single lower payment would genuinely ease the strain
- You have meaningful equity and the extra borrowing still leaves a sensible loan-to-value
- The debts being cleared carry high interest rates - typically cards and unsecured loans
- You have a realistic plan not to rebuild the card balances afterwards
- You are consolidating as part of getting control, not as a way to keep borrowing
The last two points decide whether consolidation fixes the problem or just moves it. Clearing cards with your mortgage and then running the balances up again leaves you with both the new mortgage and the old debts.
The risks you must weigh up
Think carefully before securing other debts against your home
Debt that was unsecured becomes secured on your home when you consolidate it into a mortgage. If you could not keep up the payments, your home would be at risk in a way it was not before. And although the interest rate is lower, spreading the debt over a longer mortgage term can mean you pay more in total than you would have done clearing it faster at the higher rate.
Put concretely: a card balance cleared over three years at a high rate can still cost less in total interest than the same balance spread over the remaining twenty years of a mortgage at a much lower rate. Whether consolidation costs more overall depends on the amounts, the rates and - above all - the term. This calculation is the heart of our advice, and we put it in front of you in writing before you decide.
Where it fits your situation, consolidating over a shorter term, or keeping the consolidated slice of the mortgage on its own shorter schedule, limits the extra total cost.
The process step by step
- Full review: We list every debt - balances, rates, payments - alongside your mortgage, income and outgoings
- The honest comparison: You see the monthly saving and the total cost over the term, side by side, before anything is applied for
- Lender selection: We match your loan-to-value, credit profile and consolidation amount to lenders who accept the purpose
- Application and valuation: We submit the application; the valuation is free, as on all our remortgages
- Completion: The new lender repays your old mortgage and the agreed debts are cleared with the released funds
Costs and fees
As with every remortgage we arrange, the valuation and legal fees are free. Debt consolidation counts as specialist lending, so our broker fee is up to £1,495 rather than the typical £1,250 - confirmed with you in writing before you commit to anything. Full details are in our regulatory statement.
Watch also for early repayment charges on your current mortgage deal and settlement figures on the debts being cleared - both go into the arithmetic we prepare for you.
Alternatives worth considering
A consolidation remortgage is one tool among several, and we will tell you if another fits better:
- A straightforward remortgage onto a better rate, keeping debts separate and attacking them directly
- A personal loan or balance transfer, which keeps the debt unsecured
- A second charge mortgage, which leaves an existing low-rate first mortgage untouched
- Free debt guidance from charities such as StepChange or Citizens Advice if the debts are unmanageable - consolidation is not a fix for unaffordable debt
If credit problems have already appeared on your file, our bad credit mortgage advice covers how lenders view arrears and defaults alongside consolidation.
