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What Does Debt Consolidation Mean?

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Debt consolidation is if often the first step taken when planning to get on top of your finances. The aim of debt consolidation is to repay all your debts with one manageable monthly payment and to have peace of mind that everything will be repaid at the end of the loan term.

Many customers who contact us about debt consolidation mortgages feel worried and stressed by the thought of not being able to repay what they owe and bogged down in simply making minimum payments without making a difference to the overall balances.

Customers have typically explored the preferred unsecured debt consolidation such as personal loans and low interest balance transfer credit cards deals and been declined for one reason or another or told they are unable to borrow enough.

Debt Consolidation Solutions:

  1. Debt Consolidation Personal Loan: A straightforward option that may come with higher interest rates. If payments are met, then your debts will be repaid at the end of the loan term.
  2. Low-Rate Credit Cards: Effective for smaller debts but require disciplined management for making payments.
  3. Debt Management Plan: Can help in the short-term however, could impact your credit score in the longer term.
  4. Repay using your home equity: We can explore the options available for using your built-up equity to repay your loans, however, this is a higher risk strategy that any of the above.

Debt Consolidation Mortgage Advice

As an experienced mortgage broker, we can look at all your debt consolidation mortgages options, this involves taking your currently unsecured debts and securing them against your home.

Secured lending is considered high-risk lending within the industry as it is extremely easy to go wrong and mistakes can be costly. You will find it worthwhile speaking with a trusted mortgage broker to avoid ending up in a worse situation and paying more interest over the term of your loan.

Being an experienced team of mortgage brokers, we can explore assorted options with you, including secured loans, a debt consolidation remortgage, or a further advance mortgage to recommend the best way forward for your personal situation.

It is important to remember that consolidating unsecured debts into a secured loan against your home is risky. If you fail to meet your monthly mortgage payment, your home could be repossessed by your lender, and you could become homeless. It is always advisable to explore all unsecured lending options with your bank ahead of a mortgage application.

Solutions for Debt Consolidation Using a Mortgage

A Further Advance Mortgage

Utilising a further advance mortgage for debt consolidation involves borrowing additional funds from your current lender to repay your liabilities. A further advance mortgage can work well if you are currently tied into an existing deal, such as a low fixed rate that it cost-effective to keep, or you have early repayment charges.

For a further advance mortgage to raise funds, you will need to complete a full affordability assessment and pass a credit score application with your existing lender. Any changes in your credit score or personal situation since taking out the original mortgage can have an impact this application.

With further advance mortgages, the additional funds that you raise will be at a different interest rate and term than your current mortgage deal. Ideally, it is always a good idea to try to get both parts finishing around the same time with a future remortgage in mind.

A Debt Consolidation Remortgage

If you have a lot of equity built up in your property, a debt consolidation remortgage allows you to use this to repay your outstanding debts. To be accepted for a debt consolidation remortgage, you will need to pass affordability checks and a credit score application with a new lender.

A debt consolidation mortgage works well for those customers that are not in a fixed-rate deal with their existing lender or currently mortgage-free. As part of the application process, you will need to prove your creditworthiness to a new lender along with passing their affordability assessments.

If you are a more mature customer and looking to consolidate your debts, there are plenty of mortgages for the over 50’s options available also to help.

Your existing mortgage, if you have one, and additional borrowing that you are taking will be with a new lender.

Secured Loans

Using a secured loan for debt consolidation might be recommended by our mortgage advice team if you have been declined a further advance for additional lending or if your current lender has stopped lending new money.

A secured loan is second mortgage that is secured on your property. A secured loan will be with a different lender and on different terms to your current mortgage. The money raised via a secured loan can be then used to repay your debts.

Secured loan mortgages work well when funds are required quickly, however, the rates are often higher that with traditional mortgages due to the additional risk taken by the lender.

As with all mortgages, it is important to seek trusted advice. Our experienced mortgage broker team will recommend the best way forward based on your individual objectives and goals. Mistakes by going with the wrong product or lender can be costly and you can waste a lot of time.


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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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