How to Remortgage to Pay Off Debt

We’ll explain how you can remortgage to consolidate some or all of your debts, what the benefits and disadvantages of this could be and why using the services of a mortgage broker can boost your chances of success.

Can you remortgage to pay off debt?

Yes, it’s possible to remortgage to pay off debt by using the equity in your home. This is a common reason for remortgaging and will result in an increase in the size of your mortgage. If you have enough equity in your property and meet the eligibility requirements of your chosen lender (which can be either your existing lender or a different one), there’s nothing to stop you from remortgaging your home for debt consolidation purposes. In fact, 90% of lenders in the U.K. allow for this.

Remortgaging to pay off debt can lower your monthly payments, simplify your finances, and potentially save on interest costs over time. However, it can result in higher overall interest costs, increased risk to your home, and involves upfront fees, making it crucial to compare with other debt management options.

How to remortgage to pay off your debt

It’s important to understand that remortgaging to pay off debts should be carefully considered against other debt management options. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Your first step should be to speak to a broker who specialises in remortgages as a professional can advise on your unique situation.

Make an enquiry with us and we will match you with a remortgage specialist with a track record of helping people release capital to pay off debts.

Your remortgage broker will walk you through the following steps:

• Providing expert advice on your unique situation so that you can consider if remortgaging to consolidate your debts is a good option for you.
• Calculating your loan-to-value (LTV) – this is the difference between the outstanding balance on your existing mortgage and the current value of your home.
• Working out how much equity you need to release in order to cover the amount required to repay all other existing debts.
• Optimising your credit reports before you apply in order to correct any inaccuracies or outdated information and helping you complete the necessary paperwork.
• Guiding you through the application every step of the way.

How much more can you borrow?

Each lender sets its own upper limit on how much you can increase your borrowing to pay off other debts.

For around a third of lenders, this is 75% of the value of your home or less. Many major lenders, including some high street banks, cap your borrowing at 80% of the value of your home. Others cap it at 85%. Just a handful of lenders will allow you to borrow more.

So, if your home is currently worth £400,000 and you have equity of £100,000, your current borrowing is £300,000, or 75% of the property value. If you wanted to increase your borrowing by £20,000, to 80% of the property value, you’d have a wide choice of lenders.

If you wanted to increase your borrowing by £40,000, to 85% of the property value, you would have significantly fewer lenders to choose from. Not only that but, if your debt to income ratio is high this will draw more scrutiny from lenders when reviewing your application.

Our remortgage calculator can tell you what your new loan-to-value (LTV) ratio and repayments will be after you’ve remortgaged, with sufficient equity released from your property to consolidate your debts.

Is it a good idea to remortgage to pay off debt?

Lots of people remortgage to pay off their other debts but that doesn’t necessarily mean it’s the right choice for everyone. It’s worth considering all the pros and cons before making a final decision that’s right for you.

Advantages

• Having all your finances wrapped neatly into one monthly mortgage repayment
• Cheaper repayments spread across a longer term
• Tied to a secure and appreciating asset – so this could, potentially, offset any additional interest you pay

Disadvantages

• Your mortgage is secured on your home, which could be repossessed if you fail to make your monthly repayments
• Your mortgage probably has a much lower interest rate than your other debts but, because it is a long-term loan, you may pay back a lot more interest in total
• Exiting your current mortgage deal could incur a large fee if you try to remortgage before the end of a specific fixed-term period. There may be other mortgage fees to pay as part of the process, such as a product fee or valuation fee from your new lender

Lenders and requirements

Most lenders offer remortgages for settling debt, but some have very specific requirements.

For example:

• TSB allows remortgaging up to 85% of the property value, subject to your credit score. The amount raised for debt repayments cannot be more than 20% of the property value.
• Santander allows remortgaging up to 85% of the property value. The amount raised for debt settling cannot be more than £50,000.
• HSBC allows remortgaging up to 80% of the property value. The amount raised for debt settling cannot be more than £50,000.
• West Brom allows remortgaging up to 80% of the property value. The amount raised for debt repayment cannot be more than £15,000.
• Harpenden Building Society allows remortgaging up to 80% of the property value. The amount raised for debt repayment cannot be more than £30,000 and the applicant must have a satisfactory repayment history.

All of the above information was accurate at the time of writing but keep in mind that mortgage lenders are constantly updating their eligibility criteria – particularly during periods of economic instability – so, these details can be subject to change at any time.

Remortgaging with new debt

If you are looking to remortgage your home for another reason (besides debt repayments) but you have new debts since you were first approved for a mortgage, be aware that these can affect your remortgage application.

Many lenders will look at your debt-to-income ratio (i.e. the percentage of your monthly income that you spend on debt repayments) as part of their affordability assessment. If your debt-to-income ratio is much higher than it was before, this can lead to having your mortgage application declined.

However, this is not always the case, and even if it does happen, there are likely to be other lenders who will accept your application. Each lender sets its own eligibility criteria for debts, so you’ll need to find the lender that best suits applicants in your situation. This is easiest with the help of a broker.

Get matched with a remortgage specialist

Lender requirements for remortgaging to consolidate debts can be intricate and your broker will need to know all of them. So, it’s best to speak to someone who specialises in this area of the market.

If you’d like advice from a debt repayment remortgage specialist, we can connect you to one for a free, no-obligation chat. Simply use our broker-matching service by calling 0808 189 2301 or enquiring online.