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How to Consolidate Debts

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Consolidating your debts can prove to be the first step in getting organised with your finances and simplify your payments into one, more manageable monthly amount.

We find that many customers that enquire about debt consolidation mortgages are feeling worried and stressed by the thought of not being able to repay what they owe.

Alternative solutions involve a debt consolidation personal loan or low-rate credit cards or entering a debt management plan, which could impact your credit score.

We are a team of independent mortgage brokers, so we can explore options such as secured loans, a debt consolidation remortgage, or a further advance with you to recommend the best way forward. 

It is important to remember that securing currently unsecured debts against your home is a risky solution, in the event of non-payment, your home is at risk of repossession, and you could be made homeless.

Debt consolidation mortgage advice is classed as a high-risk lending area therefore it is always best to seek experienced and trusted advice to avoid ending up in a worse situation and paying more interest over the term of your loan.

Here is a summary of the main debt consolidation mortgage solutions we can help with: 

Further Advance Mortgages 

A further advance mortgage for debt consolidation is taking additional borrowing from your current lender to repay your debts. This can work well where you are maybe tied into an existing deal, such as a fixed rate, and would incur early redemption charges if you switched.

For a further advance mortgage for debt consolidation, you will need to pass a full affordability and credit score application with your existing lender and be accepted for the additional funds. If your credit score has changed since you originally took out the mortgage, then you may struggle passing these checks.

The additional money raised by the further advance mortgage would be at a different rate than your existing mortgage and will be on a different term. A mortgage broker will recommend that you align both deals as much as possible to maximise your future remortgage opportunities. 

Debt Consolidation Remortgage 

With a debt consolidation mortgage, once accepted, you will be able to use your built-up equity to repay your debts.

If you are not currently in a fixed rate deal with your existing lender or you are currently mortgage free, then a debt consolidation mortgage may be the best option for you.

This involves moving your mortgage, if applicable, along with borrowing additional funds to repay your debts, to a new lender. As part of the application process, you will need to pass credit score and affordability checks with your new lender to prove you are credit worthy and that the new mortgage payment is affordable. 

Secured Loan Mortgages 

A secured loan solution for debt consolidation may be recommended if you have either been declined a further advance for additional lending or your currently lender have stopped lending new money altogether.

A secured loan is another mortgage on your property with a different lender, the money raised from the secured loan application can then be used to repay your debts.  It is possible to have multiple mortgages secured on the same property, each subsequent one will be at a higher rate due to the increased risk to the lender.

Secured loan mortgages are often called second charges and homeowner loans and they can be much quicker to complete than a debt consolidation remortgage application and clients often have their funds within a couple of weeks. 

The Importance of Mortgage Advice 

Consolidating your debts is a risky strategy and money and time can be wasted without an independent mortgage broker by your side.

We are here to offer advice and support throughout the transaction to ensure your debt consolidation goes smoothly and that you fully understand the risks involved.

You should carefully evaluate the implications before proceeding with a debt consolidation mortgage application, as it will increase the total mortgage balance secured against your property. Failing to keep up with mortgage payments could result in your home being repossessed by the lender.

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About the Author

Malcolm Davidson

Managing Director of UK Moneyman LTD

Malcolm is one of the UK’s most well-known and respected Mortgage Advisors. He is passionate about providing a 5* customer experience and he has also trained and mentored dozens of fellow Advisors in a career that is now in its third decade.

In addition to his day to day duties as Managing Director, Malcolm still gives out mortgage advice and feels lucky that his job is also very much his hobby.

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