It comes as no surprise that people these days can fairly easily amass significant amounts of debt.
Welcome to Strive Mortgages, debt consolidation mortgage broker services
If you’re on of the many thousands of people in the UK in this situation and wondering if you can consolidate these debts onto your mortgage, contact our mortgage brokers today.
What is a debt consolidation mortgage and why would someone use a re-mortgage to repay their debts?
If you’re keen to reduce your overheads and reduce some of your unsecured debts and want to remain in your current home, debt consolidation is one of several ways to achieve this.
Unsecured debts are generally secured over terms of 1-7 years and interest rates usually higher than mortgage rates. This is because the mortgage debt is secured against your home and therefore deemed less risky.
With shorter terms and higher interest rates naturally comes higher monthly payments and therefore consolidating your debts onto your mortgage can offer significantly lower monthly payments.
I’m in debt, can I re-mortgage to repay my loans?
Potentially, yes. There are many mortgage lenders that consider debt consolidation mortgages, whether you qualify for them will depend on your own circumstances.
It’s also worth mentioning that even if you are eligible for a debt consolidation mortgage, it’s not always the best course of action to clear your debts
Re-mortgaging to consolidate debts is a big decision and worth seeking professional advice and exploring alternative options before committing to.
In most cases, mortgages are arranged over considerably longer periods than unsecured borrowing, therefore the total repayable can be significantly more.
If you’re consolidating debts onto your mortgage because you’re in financial difficulty and behind on your repayments, most lenders will not assist in this instance.
For those In financial difficulty, help is at available, debt relief charities like The Money Charity & Step Change offer fantastic support to those that are struggling with their finances.
What debts can I consolidate onto my mortgage?
Here is a list of some of the debts that can potentially be consolidated into a mortgage:
- Credit card balances
- Personal loans
- Car loans
- Payday loans
- Store cards
- Other unsecured debts
It’s important to note that not all mortgage lenders allow for debt consolidation, and even if they do, there may be restrictions on the types of debts that can be consolidated. Additionally, consolidating debts onto a mortgage can have pros and cons and should be carefully considered before
Pros and cons of debt consolidation mortgages
Consolidating debt onto a mortgage can have both advantages and disadvantages, which are:
- Lower interest rates: Mortgages usually have lower interest rates than credit cards or personal loans, so consolidating debt onto a mortgage can save you money on interest payments.
- Lower monthly payments: Consolidating debt onto a mortgage can also lower your monthly payments by spreading out the repayment over a longer period.
- Simplified payments: Consolidating debt onto a mortgage can simplify your payments by combining all your debts into one monthly mortgage payment.
- Potential tax benefits: In some cases, the interest paid on a mortgage can be tax-deductible, which can reduce your overall tax bill.
- Longer repayment term: Consolidating debt onto a mortgage can extend your repayment term, meaning you may end up paying more in interest over the life of the loan.
- Higher overall cost: Although the interest rate may be lower, extending the repayment term can result in higher overall costs.
- Risk to property: Consolidating debt onto a mortgage can put your property at risk if you default on the loan.
- Accumulating more debt: Consolidating debt onto a mortgage can lead to more debt if you continue to use credit cards or other loans in the future.
It’s important to carefully consider all the pros and cons of consolidating debt onto a mortgage before making a decision. It may be beneficial in some cases, but it’s not always the best solution for everyone.
Consulting with a mortgage broker like Strive Mortgages, can help you determine whether it’s the right option for your specific financial situation.
Speak To an Expert
Whether you’ve just had an offer accepted on a property and you’re ready to go, or you’re simply wondering how much you need to save for a deposit, it’s never too soon to reach out.
How do I qualify for a debt consolidation mortgage?
Criteria for debt consolidation mortgages will vary amongst mortgage providers, like with any other mortgage application, you will be subject an affordability assessment and .
Some lenders will ignore debts that will be consolidated from affordability calculations and others will not, therefore it may be unaffordable with those that do include them, especially if you’re tight on affordability.
When re-mortgaging for debt consolidation, most lenders will not allow you to borrow in excess of 85% of the property value, although a few may allow 90%.
When is it not possible to consolidate debt onto a mortgage?
It’s not always possible to consolidate debts onto a mortgage, here’s a few possible reasons.
- Not enough equity: If you don’t have enough equity in your property, the amount you’re able to borrow may be limited, making it difficult to consolidate your debts onto your mortgage.
- Doesn’t fit lender criteria: Each lender has their own specific criteria for debt consolidation mortgages. If you don’t meet their requirements, you may not be eligible for a debt consolidation mortgage.
- Can’t borrow enough: If you have a lot of debt to consolidate, you may need to borrow more than your property’s value, which is not always possible. In this case, debt consolidation may not be an option.
- Credit score not good enough: Your credit score is an important factor in determining whether or not you’re eligible for a mortgage. If your credit score is low, you may not be able to qualify for a debt consolidation mortgage.
- Fail debt income ratio: Lenders will calculate your debt-to-income ratio, which compares your total monthly debt payments to your gross monthly income. If your ratio is too high, you may not be eligible for a debt consolidation mortgage.
- Unacceptable debts to clear: Lenders may not allow certain types of debt to be consolidated onto your mortgage, such as gambling debts or unpaid taxes. If you have these types of debts, you may not be able to consolidate them onto your mortgage.
Is consolidating debts onto my mortgage a good idea?
This will depend on your own circumstances and the options available to you. Your mortgage broker should talk you through the cost implications of consolidating your debt onto your mortgage and advice you of the total cost comparison.
In most cases borrowing over the longer term of a mortgage will result in paying more interest over all compared to unsecured debt. Generally, those that do consider consolidating debt onto their mortgage will take a view on it and accept it will cost more for the shorter-term gain and relief on their immediate financial situation.
When is it a bad idea to consolidate debt onto your mortgage?
If you’ve got debt that’s on 0% finance or on a cheaper rate than the mortgage then there’s a good argument to find alternative means or refinance. If you’re close to repaying some of the debt it may not be sensible to spread it over say 25 years.
It may not be worth consolidating your debt onto the mortgage if have alternative means of consolidating or clearing the debt. For example, using savings or refinancing using unsecured methods of consolidation.
What options are there for debt consolidation mortgages?
There are 3 main options for debt consolidation mortgages;
- Further advance: If you already have a mortgage and some equity in your property, you may be able to borrow more from your current lender. This is called a further advance. However, the interest rate may be higher than your existing mortgage rate.
- Re-mortgage: You can switch your current mortgage to a new lender and borrow additional funds to consolidate your debts. This may allow you to get a lower interest rate than your existing mortgage and reduce your monthly payments. However, you will need to go through the application process again, which may include valuation fees, legal fees, and other costs.
- Second charge: If you are unable to re-mortgage to a new lender or a further advance isn’t available from your current lender, you may consider a second charge mortgage. This is a separate loan that is secured against your property and is in addition to your existing mortgage. The interest rate may be higher than your existing mortgage rate, and you will need to pay two mortgage payments each month.
It’s important to speak to a mortgage broker like Strive Mortgages who can assess your individual circumstances and recommend the best option for you.
How to get a debt consolidation mortgage
- Check your credit score: Your credit score will play a big role in determining whether you can secure a debt consolidation mortgage. Before applying, check your score and make any necessary improvements to increase your chances of approval.
- Assess your equity: It’s important to check that you have enough equity in your property to cover the amount you want to borrow. This will also impact the interest rate you are offered.
- Gather information on your debts: Make a list of all your debts and their current interest rates. This will help you determine whether consolidating your debts onto a mortgage is the best
option for you.
- Speak to a mortgage broker: A mortgage broker can help you determine whether a debt consolidation mortgage is the right choice for you and can assist you in finding the best deal.
- Choose a lender: Once you’ve decided to move forward with a debt consolidation mortgage, you’ll need to choose a lender. Your mortgage broker can help you identify lenders that offer debt consolidation mortgages and are likely to approve your application.
- Apply for the mortgage: Apply for the mortgage and provide all the necessary documentation. This may include proof of income, details on your debts, and other financial information.
- Complete the mortgage process: If approved, you’ll need to complete the mortgage process, which may involve a valuation of your property and legal work
- Consolidate your debts: Once the mortgage is finalised, you can use the funds to pay off your debts and consolidate them onto the mortgage. Be sure to continue making mortgage payments on time to avoid defaulting on your new loan.
Which lenders offer debt consolidation mortgages?
Most lenders in the UK offer debt consolidation mortgages, but their criteria and terms can vary. Some lenders may have more favourable policies towards debt consolidation, while others may have restrictions or limitations. Here are some factors to consider:
- Affordability assessment: Some lenders may ignore the debts you plan to consolidate from your affordability assessment, while others may take them into account. This can impact how much you can borrow and your overall affordability.
- Loan-to-value (LTV) ratio: Some lenders may have different LTV caps for debt consolidation mortgages compared to regular mortgages. For example, they may only lend up to 80% LTV for debt consolidation, whereas for a regular mortgage they may lend up to 95% LTV.
Is it possible to get a debt consolidation mortgage with bad credit?
It is possible to consolidate debt onto a mortgage with bad credit, but it can be more challenging. Lenders may view borrowers with bad credit as higher risk and therefore may offer less favourable terms, such as higher interest rates or lower loan-to-value ratios. It’s important to work with a mortgage broker like Strive who specialises in helping borrowers with bad credit to find the most suitable options available.
How can Strive Mortgages help?
It’s easy to bury your head in the sand if you have debts that keep mounting, but rest assured help is at hand.
We’re very experienced when it comes to these situations and using an someone to arrange your mortgage that understands the intricacies of debt consolidation mortgages will give you the best possible chance of securing the right mortgage deal.
Working with a mortgage broker like Strive Mortgages can help you with a debt consolidation mortgage in several ways:
- Assessing your situation: A mortgage broker can help you assess your financial situation and determine if a debt consolidation mortgage is the right option for you. They can also advise you on the best course of action if consolidating your debts onto your mortgage is not feasible.
- Finding the right lender: A mortgage broker can help you find the right lender who offers debt consolidation mortgages that meet your needs. They have access to a wider range of lenders than you would have on your own, and can help you find the best deal for your circumstances.
- Helping with the application: A mortgage broker can help you with the application process for a debt consolidation mortgage. They can help you gather the necessary documentation, submit your application, and provide ongoing support throughout the process.
- Negotiating on your behalf: A mortgage broker can negotiate with lenders on your behalf to secure the best possible deal. They can help you get a lower interest rate, better repayment terms, and
other benefits that can help you save money in the long run.
Overall, a mortgage broker like us can help you navigate the complex process of securing a debt consolidation mortgage and help you find the best deal for your circumstances.
Frequently asked questions about debt consolidation mortgages
You can potentially look to remortgage to consolidate debt with your existing allow it or re-mortgage to another lender.
If you re-mortgage with your existing provider the process of additional borrowing is usually known as a ‘further advance’.
The further borrowing is usually arranged on a separate rate and product to your existing mortgage and can sometimes be at a higher rate. If you’re switching lenders, generally all your mortgage will be on the same product and rate.
Mortgage providers have a duty to lend responsibly and may carry out additional checks on applicants looking to consolidate debt onto their mortgage.
Some lenders will carry out debt-to-income ratio checks, they look at the clients current level of income compared to their outgoings and may have a limit on the ratio.
For example a customer earning £50,000 with £25,000 of unsecured debts is at 50% DTI ratio. Some lenders may not allow this and others do not consider this and work off affordability post competition of the mortgage and the customers credit score.
There are alternative options to debt consolidation on a mortgage. Here are a few:
– Clearing from savings: If you have savings, using them to pay off your debts can be a good option as you won’t have to pay interest on the debts anymore.
– Gift: If you have a family member or friend who is willing to gift you some money, you could use it to pay off your debts.
– Consolidate using other unsecured borrowing like a personal loan: If you have a good credit score, you may be able to consolidate your debts using a personal loan. Personal loans usually have a lower interest rate than credit cards or other unsecured debts, which could save you money in the long run. However, it’s important to make sure you can afford the repayments before taking out a personal loan.