What is a Debt Consolidation Mortgage?


Are you considering a debt consolidation mortgage, or wondering what one actually is? 

Our guide explains what the criteria is, how you can apply for one and how our expert mortgage advisors can help you!

What is debt consolidation?

Debt consolidation is when you take a few separate debts, such as loans and credit cards, and refinance them all together into one new loan arrangement.

What is a debt consolidation mortgage?

A debt consolidation mortgage is a remortgage of your existing property where you raise additional funds to repay other existing debts.

What type of debts can I consolidate with a mortgage?

You can consolidate most debts into a mortgage. 

This will include:

  • Personal loans
  • Car finance
  • Additional secured loans
  • Credit and store cards

Most lenders will not allow you to consolidate business debts into a residential mortgage, however, this may be possible with specialist lenders.

Can you use a remortgage to repay debts?

Yes, you can use a remortgage to repay debts.

You will take out a new mortgage which will cover your existing mortgage balance and also an additional amount to repay your other debts.

How does a debt consolidation mortgage work?

A debt consolidation mortgage works by increasing the level of your mortgage borrowing to allow you to repay your existing mortgage and also raise funds to repay your other debts. 

Most lenders will send the additional funds to you, once your existing mortgage has been settled, for you to repay the debts you are looking to consolidate. 

Some lenders, however, will insist that the debts are repaid either by themselves or the solicitor dealing with the remortgage, to ensure that these debts are cleared in full.

Can you get a debt consolidation mortgage with bad credit?

Yes, lenders who offer mortgages to applicants with adverse credit histories may well allow you to consolidate other debts when you remortgage.

As with all applications of this type, there may well be additional checks made and lenders criteria that needs to be met.

What do lenders assess when applying for a debt consolidation mortgage?

Lenders will do the normal credit and affordability checks, as with all mortgages. 

The new mortgage amount will also need to be within the lender’s loan to value criteria for debt consolidation applications, and some lenders will have a reduced maximum loan to value for these cases. 

Some lenders will also put a limit on the pound amount of debt that can be consolidated so it is important to choose the correct lender for your personal circumstances.

Pros and cons of a debt consolidation mortgage

There are a few pros and cons to debt consolidation mortgages that you should consider:

Advantages of a debt consolidation mortgage

The main advantage of a debt consolidation mortgage is that it is designed to reduce your monthly outgoings. 

This is usually because your mortgage will be repaid over a longer term than the existing debt arrangements that you are consolidating. 

It is also likely that the interest rate on the mortgage will be lower than that of the other debts.

Disadvantages of a debt consolidation mortgage

There are a couple of disadvantages of debt consolidation mortgages that you need to be aware of and take into consideration. 

The first one is that, while adding the debt to your mortgage will reduce the monthly payments, increasing the repayment term of these debts to that of a mortgage will mean that the total amount of interest paid over time will be higher and could be a significantly increased amount. 

Secondly, most debts that are consolidated are unsecured debts, such as personal loans and credit cards. 

Adding them into a mortgage means that those balances now become secured debts, which means they are secured against your property and should you have difficulty repaying them in the future, it could mean your property is at risk of repossession. 

It is also important to ensure if you do consolidate your existing debts, that you do not build them up again afterwards. It can be too easy to start using those credit cards again, when the balance has been cleared by consolidation. This will only lead to problems in the future and should be avoided whenever possible.

Where can I get a debt consolidation mortgage?

Most mortgage lenders will offer debt consolidation mortgages, but it is vital that you fully understand the implications of adding debts into a mortgage. 

An expert mortgage broker, like our team at GO2, will guide you through the process and ensure you have the correct advice for your personal circumstances.

About the author 

Gary Oxborough

Gary is the Founder and Director of Barlow Irvin Financial Services Ltd. He has been in the Finance industry for over 20 years and has specialised in Mortgages since 2003. As well as running the firm, he is still actively involved in advising clients.

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