Remortgaging to pay off debt is a good idea when your current deal is ending or has no early repayment charge, the new rate is competitive, and you can resist running the debts up again. It can be the cheapest monthly route: in the standard example, £20,000 of cards and loans costing £532 a month falls to £136 a month at 5.4% over 20 years. The catch is a total repayment of £32,748, and your home secures every pound.
- A debt consolidation remortgage replaces your existing mortgage with a larger one and uses the extra to clear unsecured debts.
- Leaving a fixed rate early usually triggers an early repayment charge, commonly 1% to 5% of the balance.
- Adding £20,000 to a mortgage over 20 years costs far more in total interest than clearing the same debt in five.
- Your home may be repossessed if you do not keep up repayments on a mortgage that now includes your old debts.
- MoneyHelper, StepChange and Citizens Advice offer free, impartial debt advice before you secure anything on your home.
When does remortgaging to pay off debt make sense?
The ideal moment is when your fixed or discounted deal is ending anyway. At that point you are going to remortgage or move onto your lender's standard variable rate regardless, so borrowing a little more to clear expensive unsecured debt carries no early repayment charge and lets you take advantage of a fresh rate on the whole balance. If you have built up a reasonable amount of equity, a remortgage lender will typically consider capital raising for debt consolidation up to a combined loan-to-value of around 80% to 85%, though this varies.
It also makes sense when your unsecured debts are large relative to your income and the monthly cost is crowding out everything else. Mortgage rates are usually the lowest rates a homeowner can borrow at, so moving expensive card balances onto the mortgage makes an immediate difference to cash flow.
Finally, it can be the right choice when your credit file is clean enough to qualify for a mainstream lender. Remortgage lenders are generally stricter than secured loan lenders about recent adverse credit, so the route suits homeowners whose history is good even if balances have crept up. Our guide on whether you can remortgage to pay off debt covers eligibility in more detail.
When is remortgaging to pay off debt a bad idea?
The most common mistake is leaving a good fixed rate too early. If your deal has two or three years to run, the early repayment charge alone can be several thousand pounds, and the new rate on your whole mortgage may be higher than the one you are giving up. In that situation the "saving" on the unsecured debt can be swallowed entirely by the extra cost on the mortgage. A secured loan that leaves the existing deal in place is often the better route here, as our secured loan vs remortgage comparison explains.
It is also a poor idea if the debt would be stretched over the full remaining mortgage term simply to make the payment look small. Twenty years of interest on a car loan or a holiday is expensive, however low the rate. And it is dangerous if the underlying spending has not changed: you would be securing old debt on your home while new unsecured debt builds behind it.
If you are already struggling to meet your mortgage, or your income is uncertain, adding to the balance increases the risk of losing your home. Free, impartial advice from MoneyHelper, StepChange or Citizens Advice can help you compare a remortgage against options such as a debt management plan before you commit to anything secured.
What does remortgaging to pay off debt actually cost?
The figures below use the standard illustrative example. They are not a quote.
Illustrative rates: The rates in this example are fictional and used only to show how the numbers work. They are not an offer. Your actual rate may be lower or higher and will depend on your circumstances, your property and the lender. Consolidating debt over a longer term can mean you pay more interest overall, even if your monthly payment falls.
| Position | Monthly | Total repayable |
|---|---|---|
| Now: £12,000 on cards at 24.9% (minimum payments) plus an £8,000 personal loan at 12.9% over 5 years | £532 | Depends on how long the cards take to clear |
| New: extra £20,000 on the mortgage at 5.4% over 20 years | £136 | £32,748 |
The monthly saving is £396, the largest of any consolidation route, because mortgage rates are low and the term is long. The price is that £20,000 of borrowing becomes £32,748 of repayments, with £12,748 of interest. Shortening the term on the consolidated part, or overpaying, reduces that considerably. On top of the interest you should budget for the early repayment charge if you are leaving a deal, plus valuation, legal and arrangement fees, which some lenders waive on remortgage products. A qualified adviser will set all of this out before you commit.
How do you time a debt consolidation remortgage?
Most fixed rate lenders let you lock in a new deal up to six months before your current one ends, and many will allow the additional borrowing to be arranged as part of that switch. Starting the conversation three to six months out gives your broker time to compare lenders and, if needed, sort out any issues on your credit file. If your deal ends in the next year, waiting is often cheaper than paying an early repayment charge now.
If the deal has longer to run, ask your broker to calculate two figures: the early repayment charge you would pay today, and the total cost of a secured loan that leaves the mortgage alone until the deal ends, at which point you could remortgage everything together. Our guide to keeping your mortgage rate and clearing your debts walks through this two-step approach.
Whatever the timing, remember that the loan is secured on your home, which may be repossessed if you do not keep up the repayments. Checking your options will not affect your credit score, and a broker will tell you if neither route is a good fit.
Remortgaging to pay off debt is not the right answer if you are part way through a fixed rate with a large early repayment charge, if your credit file has recent defaults or a CCJ that mainstream lenders will not consider, or if you have too little equity to stay within the lender's loan-to-value limit once the debt is added. It is also the wrong move if the debt is small enough to clear quickly by overpaying, or if a new mortgage would run past retirement. And if you are already behind on your current mortgage, a free debt advice charity should be your first call, not a new lender.
Worried about debt? Get free advice first
If you're struggling, it's worth speaking to a free, impartial debt advice service before you borrow more. They don't sell anything and won't judge your situation.
- MoneyHelper: Free, impartial debt advice backed by government
- StepChange: The UK's largest free debt charity
- Citizens Advice: Free, confidential advice on debt and money
Checking your options with Equiclear will not affect your credit score.
Frequently asked questions
Is it better to remortgage or take a secured loan to pay off debt?
If your deal is ending or has no early repayment charge, a remortgage usually offers the lower rate. If you are locked into a good fixed rate, a secured loan leaves that deal in place and avoids the charge. A broker will compare the total cost of both for your situation.
How much can I add to my mortgage to pay off debt?
It depends on your equity, income and the lender's rules. Many remortgage lenders cap borrowing for debt consolidation at around 80% to 85% loan-to-value and check that the new payment is affordable. Some also limit the amount of consolidation as a share of the total loan.
Will remortgaging to pay off debt cost more overall?
Very often, yes. Spreading £20,000 over 20 years at 5.4% costs £32,748 in total, compared with less if the debts were cleared in five years. The trade-off is a much lower monthly payment. Choosing a shorter term or overpaying reduces the extra cost.
Can I remortgage to pay off debt with bad credit?
It is harder. Mainstream remortgage lenders are typically strict about recent adverse credit, though some specialist lenders consider older or smaller issues. If your credit history is a problem, a secured loan lender may be more flexible. Our bad credit hub explains what lenders in each market look for.
What is an early repayment charge and how much is it?
An early repayment charge is a fee your lender charges if you repay or switch your mortgage during a fixed or discounted period. It is commonly 1% to 5% of the balance, often reducing each year of the deal. On a £200,000 mortgage that can be several thousand pounds.
Do lenders pay my debts directly when I remortgage?
Some do. Many lenders make it a condition of the offer that the debts being consolidated are repaid on completion, and the solicitor may pay creditors directly from the mortgage funds. This protects the lender's affordability assessment and confirms the old balances are actually cleared.