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Is it a good idea to consolidate debts into my mortgage?

Generally speaking, the longer you have a debt, the more interest you will pay on it, which is why it’s not always a good idea to consolidate small unsecured, personal debt into your mortgage. If you can manage the monthly payments and you can pay the debts down quicker, you should always aim to do this first. 


That said, for some people, especially where the level of unsecured debt has become significant and people I are struggling to pay, it could be an option that could help you to get on top of spiralling or unmanageable debt and put your finances back onto an even keel.


Many lenders will allow you to remortgage your home to them and borrow additional funds to repay debts. You will have to go through a full remortgage process. Your property will be valued and your income and outgoings assessed to ensure that the mortgage is affordable. Your credit rating will also be assessed and the solicitor will have to do the necessary legal work to register the new mortgage with the land registry. In many cases lenders will pay for the valuation and the legal work but that is not always the case. 

So why should I consider Debt Consolidation?

By consolidating debt into your mortgage, you can often spread the repayments over a much longer period than you would with a personal loan or a credit card. This can mean that your monthly payments are much lower and therefore more manageable.


You will still have to repay the debt however and by spreading the repayments over a longer period you could end up paying more in interest but it can significantly reduce the monthly cost of servicing your debts and can make it easier to budget and deal with the underlying debt.

Some do’s and don’ts of debt consolidation.

Normally, you should not move  interest free debt such as retail credit or credit card transfer balances onto an interest bearing facility.


It is normally best not to seek to consolidate small balances into your mortgage. We would not advise customers to consolidate balances for less than £1000 for example.


It is always best to act early and not wait until you get to the point that you start missing repayments. It will be much harder for you to consolidate debts if you have missed or late payments on your credit file.


Some lenders may be willing to consider you even if you have missed or late payments or even County Court judgements or defaults against you. In such circumstances however you need to be prepared to pay a higher rate of interest on your mortgage.


You should always consider whether there are any fees or early repayment charges in connection with your existing mortgage. If there are, you may be able to do a further advance with your lender or arrange a secured loan or second charge mortgage which will run alongside your existing mortgage. You normally need to get your existing lenders permission to do this. If we consider that a secured loan would be more suitable for you than a remortgage or further advance, we will refer you to a specialist secured loan broker to help you.


Consolidating debt should not be a regular occurrence. We will always ask if debts have been consolidated before and check to see that there is not an ongoing pattern.


If you are struggling with debt you can also seek advice from charities such as Stepchange or the Citizens Advice Bureau.


You will need to have a reasonable idea as to the current value of your home and the current balance of your existing mortgage. Many lenders will limit how much you can borrow for debt consolidation purposes. A few lenders may let you borrow up to 90% of the value of your home but many other lenders are conservative when it comes to remortgaging and will restrict this to 75% for example.


It is a good idea to get a copy of your full credit report so that your adviser can see the precise balances on any existing credit arrangements along with evidence of how you have handled them. If one party is taking on someone else’s debts in their sole name we need to understand why. We also need to know who is responsible for existing debts i.e. whether they are in sole or joint names.


Some customers want to know if they can borrow additional money for other purposes too? In short, yes you can. Most lenders will allow customers to borrow money for any legal purpose. As well as debt consolidation, most common reasons tend to be for home improvements, purchasing a car, raising a deposit to purchase another property or buying other property out right, or paying for a wedding. The list goes on. The main reasons that lenders won’t allow you to borrow additional funds are normally raise money for speculative commercial or business purposes, to pay tax bills auto repair gambling debts.


If you are struggling with debt you can also seek advice from charities such as Stepchange or the Citizens Advice Bureau.

Next Steps

If you would like to speak to us about potentially remortgaging to consolidate debts, please go to www.cliftonmortgages.com/book-appointment