Debt consolidation remortgage: the true cost

How a debt consolidation remortgage works

You remortgage, or take a further advance from your current lender, for more than you owe, and use the extra to pay off other debts such as credit cards, loans or car finance. Instead of several payments you have one, usually at a lower rate, spread over the mortgage term. Most lenders allow borrowing for debt consolidation up to about 80% of your home’s value. See further advances.

Why the total cost is usually higher

A mortgage rate is lower than most card and loan rates, so the monthly cost falls. But a five year loan spread over 25 years is paid for 20 years longer, so the total interest is usually much higher. Fees for the new mortgage and any early repayment charge on your current deal add to the cost. Consolidating may extend the term of the debt and increase the total amount you repay. The calculator above shows both sides for your debts.

The risk to your home

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. Unsecured debts, such as credit cards, cannot lead to your home being repossessed in the same way. Once they are part of the mortgage, falling behind puts your home at risk.

Clearing it faster

If you consolidate but keep paying what you pay now, as an overpayment on the mortgage, you could clear the consolidated amount much sooner and pay far less interest. Most fixed rates allow overpayments of up to 10% of the balance a year without a charge; check yours first. See the overpayment calculator.

Alternatives to consider

A 0% balance transfer card can cut card interest without securing it on your home. Talking to the lenders you owe can lead to lower payments. If you are struggling, free and confidential debt advice from MoneyHelper (moneyhelper.org.uk) should come first. An FCA-authorised mortgage adviser must check whether debt consolidation is suitable for you before recommending it.