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Remortgage To Pay Off Debt

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 5, 2023

Remortgage To Pay Off Debt

Being on the creditor side of debt leaves a lot to be desired. Beyond having to shift finances around, people are often bombarded with messages from debt collectors and thus become desperate for solutions so here’s a look at remortgaging as a solution to your debt consolidation.

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What Is Remortgaging?

Remortgaging is the process of settling one mortgage with the proceeds from another mortgage, effectively replacing your current mortgage deal with another one. This involves using the same property as security.

This can also be achieved by liaising with your current lender to revise the terms and products in the mortgage deal or by getting an entirely different mortgage lender.

People primarily do this to release equity in their property and receive a lump sum of cash or to get monthly repayments that are lower than their old ones. Both of these outcomes can leave you with cash that can be used to consolidate debt.

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What Is Debt Consolidation?

Debt consolidation is a way of debt refinancing in which people take out a single loan to settle a series of debts, such as a personal loan or credit card bills.

Many people opt for this route as it can make managing monthly repayments much easier and can save you both time and money.

Like most things to do with finances, there’s much to be considered before taking this route. For one, it’s important to bear in mind that debt consolidation loans may impact your credit, but this is generally only for a short period of time.

Should you consolidate debt?

Debt consolidation is usually best for those who have multiple loans with high-interest rates or if you’re struggling to track payments and outstanding balances. However, debt consolidation may only be feasible if you’re credit score has gotten better since getting the original loan, as it being useful largely hinges on getting a lower interest rate.

Consolidating debt may also only be a temporal solution to a long-term problem if you haven’t addressed the issues that led to your debt in the first place, overspending being one of the most common ones.

Additionally, using debt consolidation to pay off heavy credit card debt and then repeating the cycle can simply lead to more substantial financial issues.

If you’re looking to consolidate debts, then ensure the following first:

  • That you can pay off a consolidation loan within five years if you choose to take out one.
  • Your cash flow always covers payments towards your debt.
  • Your monthly payments, including your mortgage, don’t exceed 50 per cent of your monthly gross income.
  • That you have a credit rating that’s good enough to qualify for a credit card with a 0 per cent interest period or a debt consolidation loan with a low-interest rate.

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Can You Remortgage To Pay Off Debts?

Remortgaging to pay off debts is indeed possible and is a relatively common practice. To do this, you need to have enough equity in your property to meet the eligibility requirements of a lender. The vast majority of UK lenders allow people to do this, and there effectively isn’t much stopping you from doing so.

It’s also worth noting that you have the option of staying with your current mortgage lender or finding a new mortgage provider.


How To Remortgage To Pay Off Debts

There are three main steps involved:

Calculate your loan to value

  1. Find out your outstanding mortgage balance. Divide the outstanding balance by your home’s current value and multiply by 100; this will give you your LTV.

Assess your borrowing potential

  1. This will involve you conducting an assessment of all your debts and determining how much you want to consolidate.

Consult a remortgage specialist

  1. The remortgage process is complex, so proceeding without seeking expert advice first is not the best approach.

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How To Tell If Remortgaging Will Suit You

Although remortgaging is a viable option for most, it’s not necessarily suitable for everyone. This is why it’s important to do your research before rushing into it.

One place to start is searching the market to find a mortgage lender with favourable interest rates, particularly if your existing lender can’t give a competitive interest rate on your remortgage. Always remember that remortgaging will only truly be beneficial if it entails having a lower interest rate.

Just because you qualify for a remortgage doesn’t necessarily mean that it’s the best route for you. Only remortgage if you have sufficient equity; if you don’t, a remortgage may become expensive for you in the long run.

Before you consider a remortgage, seek advice from a professional, and before you do that, consider the following:

  • Will a remortgage truly improve your financial situation?
  • Whether you’ve addressed the spending habits that led to your existing debts.
  • How long will the mortgage be for?
  • Can you afford the monthly payment rate?
  • Will a fixed or variable mortgage work better for you?
  • Whether you can afford the early repayment charge for your old mortgage provider and the application fees for your prospective lender.


How Difficult Is It To Remortgage?

Getting a remortgage is effectively the same process as applying for a mortgage and thus carries over similar, if not the same, difficulties. If you choose to remortgage, you’ll find that mortgage lenders will use the same criteria that they would on a regular mortgage application to judge you, so things like your credit history, income, and monthly outgoings.

Both getting a mortgage and remortgaging can be difficult and lengthy processes as mortgage lenders are regulated by the Financial Conduct Authority (FCA) and can thus only provide you with a mortgage if they feel you can comfortably afford it.

If you feel a mortgage lender is trying to push you into a loan that you cannot afford, then you’re well within your right to report them to the FCA.

You also need to remember that mortgage lenders work on the basis of slightly different criteria, so initially being rejected is not the end of the world. Remortgaging is also still possible if you have a secured loan.

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The Benefits Of Remortgaging To Pay Outstanding Debt

If you’ve prepared sufficiently and acquired a favourable remortgage arrangement, then the most obvious benefit would be getting lower monthly payments. In addition to having significantly lower interest rates than a personal loan or a credit card loan, mortgage loan repayments occur over a greater time span, thus providing more breathing room.

So, the fundamental benefit of remortgaging is your payments become more manageable, which then enables you to make other important purchases.


The Risk Of Remortgaging To Pay Outstanding Debts

Before you rush to remortgage, it’s also important to remember that although your monthly debt repayments will be lower, you’ll be making mortgage payments for a longer period of time than initially anticipated. This, in turn, means that you’ll be paying more interest than other types of loans.

For instance, if you initially had to pay your loan back in 10 years, you might end up having to pay it back in 20, thus meaning that you’ll be paying interest for an additional 10 years.

Another risk to be aware of is losing your home. When you consolidate debts onto your mortgage, your property becomes collateral in the deal. Credit cards and personal loans are generally unsecured debts, but when your remortgage to pay them off, they become secured debt.

If you fail to make your mortgage payments in good time, then a lender may repossess your home, and you could eventually end up losing it completely. So, whether or not you take this approach may largely depend on your risk tolerance.

Don’t panic, as you won’t lose your home for failing to make credit card payments; however, if you choose a debt consolidation remortgage, then your home will be at risk throughout the mortgage repayment period.

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Other Options For Debt Consolidation

Save money

Saving money is an age-old debt solution that doesn’t have any extra costs involved. Granted, this isn’t always easy, particularly if you knowingly have a spending problem, and the viability of this solution does depend on the severity of your debt. Nevertheless, have a look at your monthly payments and expenses and cut down on anything that’s unnecessary.

Balance transfer

If you’re dealing with credit card debt, you can transfer the balance to a card that has a lower interest rate, which, in turn, will lower the amount of money that you owe.

Debt specialists

When in doubt, seek out the help of a professional. If you get in touch with a debt charity, they can provide you with obligation-free debt advice and point you to further solutions, such as an Individual Voluntary Arrangement (IVA) or Debt Relief Order (DRO).


Remortgage With Loan Corp

Remortgaging to pay off debt is not a decision that shouldn’t be taken lightly. It’s a big decision that could have a serious impact on your financial situation. As mortgage brokers, Loan Corp has a team of experts with the specialist knowledge required to guide you through the remortgaging process.

If you’re thinking about remortgaging for debt consolidation, then get in touch with us via our online form or call us on 0808 301 9509.

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Can I remortgage a shared ownership property for debt consolidation?

You can indeed remortgage a shared ownership property for debt consolidation, but lender requirements for remortgaging can be relatively complex, hence the reason why a mortgage broker will insist on knowing all of them.

Not all lenders accept remortgage applications for shared ownership properties, and it’s advisable that you start off by checking whether this is possible with your housing association.

What’s the difference between remortgaging and refinancing?

Unbeknownst to many, the primary difference between remortgaging and refinancing is their names, as they’re functionally the same concept. Mortgage refinance is the term used in the United States, whereas remortgaging is more prevalent in the United Kingdom and other parts of the world.

There is also a slight technical difference. A mortgage refinance normally implies that the borrower found an alternative lender, whereas a remortgage entails the borrower keeping their original mortgage lender.

How much will I get if I remortgage?

When remortgaging, a homeowner will typically borrow the amount that’s outstanding on their existing mortgage. However, they may borrow more if they’re using the option to release cash. Nowadays, most mortgage lenders will only allow you to borrow 90 per cent of the value of your property.

It’s important to remember that remortgages are always treated as new mortgage applications, so most of the same assessments and considerations will be made. It’s highly likely that a lender will conduct their own valuation of your home, and any disputes about your home’s value could impact the loan-to-value.

Do I need a solicitor to remortgage?

You usually won’t need a solicitor if remortgaging with your current provider, but you need to check this with a lender before going any further. If you plan on changing lenders, then you’ll more than likely need a solicitor.

How long does the remortgage process take?

After your application, the remortgage process will typically take around four to eight weeks. However, this timeframe isn’t always guaranteed, and delays are a common occurrence when remortgaging. Most applications may also require you to speak to a lender’s mortgage advisor.

You can speed up the process by informing your solicitor that you’re pressed for time, preparing the relevant paperwork beforehand and supplying it on time, ensuring that you’re in a relatively good financial position. If you’re borrowing money or have a poor credit rating, then this could slow down the process.

Final Thoughts

Being in debt can be extremely stressful, so remortgaging may seem like an ideal solution to your problems. While this may be true for some, there are still a number of aspects that you have to consider before taking this route.

Remortgaging is no longer as painless as switching your current mortgage deal and leveraging any increased equity in your home. If you do decide to remortgage, make sure you’ve made all the necessary considerations beforehand or contact us now for expert advice.

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