Damian Youell

I’m Damian Youell an experience mortgage broker with over a decade of experience. I’m dedicated to helping clients by offering an efficient and friendly service.

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Debt Consolidation Mortgage

You may have heard of the term debt consolidation before in relation to mortgage loans. Understanding how debt consolidation works may be able to help you better manage your finances and save you money. We explain debt consolidation in further detail in this article so you can decide if it’s right for you.

Post Topics

What is debt consolidation?

How debt consolidation works

Things to consider before consolidating your debts

Next steps

FAQs- Debt Consolidation Mortgage



What is debt consolidation?

There are a number of scenarios where someone may use debt consolidation. Often it is used to pay off other debts such as store cards, credit cards or other personal loans.

Having many different types of loans could be hard to manage. Debt consolidation can help someone manage their finances better by allowing all other types of personal debt to be rolled in to one monthly payment through remortgaging your property or taking out a new home loan. By remortgaging or taking a home loan, you can raise funds with your mortgage to pay off all your other debts, but this doesn’t mean your debt is gone, it will still have to be paid off and your mortgage loan amount will increase, which might mean your monthly mortgage repayments will also increase. You should consider whether you can afford the increased monthly mortgage payments, even if all your other debts have been settled.

How debt consolidation works

Mortgage loan is a form of secured lending, as the loan is secured against your property. Other types of loans such as credit cards, pay day loans, personal loans and others are a form of unsecured lending as it isn’t secured against anything but with any type of loans, if you default on payment it can have serious consequences and affect your credit score which might prevent you from being able to take out further loans in the future.

Often, you’ll find unsecured loans carry a higher interest rate than mortgage loans, which is why debt consolidation could help save you money and your total monthly repayments may be lower once your debt is consolidated into your mortgage.

You will need to have built up equity in your property to be able to take funds from your property to consolidate your debt. You will be required to meet lender’s criteria’s and requirements and expectations can vary lender to lender. It is wise and good practise to check your credit score as lenders will use your credit history to determine how risky of a borrower you are. If you have missed payments on your other loans, this can push down your credit rating and the lender might be cautious to provide you with further lending. Lenders will take into consideration your monthly income and outgoings to check your affordability to ensure that you have enough each month to keep up with their monthly repayments.

Things to consider before consolidating your debts

By moving your unsecured debts to a mortgage loan, it could put your home at risk if you are unable to keep up with the monthly repayments. Defaults in mortgage payments could lead to your home being repossessed so it is important to consider if debt consolidation is right for your financial situation and if it is a more manageable method of repaying your debts.

Consolidating your debt will increase the size of your mortgage loan and although interest rates are usually lower with mortgages than unsecured debt, you could find yourself paying more interest overall as mortgage payments are spread over a longer term. Mortgage terms are usually 25 – 30 years whereas credit cards or other types of loans are usually short-term financing lasting a few years.

Debt consolidation isn’t right for everybody and everyone has different personal financial situations so the decision to consolidate your debt should be thought through thoroughly. You can contact a debt consolidation mortgage broker before starting your application

Next steps

Debt consolidation can seem confusing and you may be unsure of the best plan of action for you own personal circumstances. A mortgage advisor can offer you professional guidance and to make sure that debt consolidation is right for you. Get in touch with us today to discuss in more detail.

FAQs – Debt Consolidation Mortgage

What is a debt consolidation mortgage?

A debt consolidation mortgage is where you borrow an amount equal to the combined outstanding balance of all your existing loans and then pay them off using one monthly instalment.

The advantage of this is that you only have one monthly repayment to manage instead of multiple payments. This means that you will probably spend less time managing your finances and your monthly repayments will be easier to budget for.

How does a debt consolidation mortgage work?

When you apply for a debt consolidation mortgage you will typically be asked to complete a questionnaire which will help the bank assess whether they would lend money to you. The questions will include information about your current financial position including what type of housing you live in, your employment status, any savings you have and how much you earn per year. They will also ask you about your previous borrowing patterns and how long you’ve been making regular repayments. You can contact an expert remortgage broker before going to a mortgage lender.

Once you have completed the application form, the bank will review your details and decide whether they will approve your request.

 What is a secured loan?

A Secured Loan is when you borrow money against something you already own such as your car, house or land. In most cases, the lender will require proof that you own the asset before approving the loan. If you don’t have enough equity in your property to secure the loan, the bank may still agree to lend you the money but you will need to provide additional security by selling some of your assets. You can contact a known mortgage broker before going to a mortgage provider. 

Can I get additional borrowing on my current mortgage?

Yes, you can get additional borrowing on your current mortgage as long as you can afford to pay monthly repayment. If you want to add extra borrowing to your home, it’s important to remember that you can only do this if you have sufficient equity in your home. You won’t be able to borrow more than 80% of the value of the property unless you sell part of your home. To read more about additional borrowing you can check our article.