Usually, yes. Moving £20,000 of cards and loans onto a mortgage over 20 years cuts the monthly payment sharply but tends to cost more in total than the original debts, because a lower rate charged for four times as long adds up. It does not have to. If you consolidate over 5 or 10 years, or overpay the mortgage with the monthly saving, a remortgage to pay off debt can cost less overall as well as less each month.
- Interest cost is rate multiplied by time, so a low rate over 20 years can cost more than a high rate over 5.
- Consolidating over the full remaining mortgage term is the default most people fall into, and the most expensive choice.
- Shortening the term or overpaying with the monthly saving is what turns a dearer total into a cheaper one.
- Your home is the security, and it may be repossessed if you do not keep up the mortgage repayments.
- Free advice from MoneyHelper, StepChange or Citizens Advice can tell you whether consolidating is right at all.
Why does consolidating debt into your mortgage usually cost more overall?
Because the two things that decide how much interest you pay pull in opposite directions. A mortgage rate is far lower than a credit card rate, which is the whole attraction. But a mortgage runs for decades, and a credit card balance you are paying down steadily, or a personal loan with a fixed five-year term, does not. Interest is charged on the outstanding balance for as long as it is outstanding, so a small rate applied for 20 years can easily overtake a large rate applied for 5.
The default most homeowners fall into is adding the consolidated amount to the mortgage and spreading it across the remaining mortgage term, because that is what produces the dramatic drop in the monthly figure. The lender's illustration shows the total amount repayable, and that line deserves as much attention as the monthly one.
There is a second, less obvious cost. Consolidating turns unsecured debt into secured debt. A missed card payment damages your credit file; a missed mortgage payment puts your home at risk, because it may be repossessed if you do not keep up the repayments. That is a reason to be sure the new payment is comfortable rather than merely lower. Our guide to whether consolidating into your mortgage is a good idea weighs the wider trade-offs; this page sticks to the arithmetic.
What does the arithmetic look like over 5, 10 and 20 years?
Take the standard example: £12,000 on credit cards at 24.9% costing £350 a month, and an £8,000 personal loan at 12.9% over 5 years costing £182 a month, so £532 a month now. Kept as they are, the loan costs about £10,900 in total and the cards, at £350 a month, clear in around 61 months for about £21,200, roughly £32,100 all in. Now compare consolidating the same £20,000 onto a mortgage at three different terms.
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.
| Over 20 years | Over 10 years | Over 5 years | |
|---|---|---|---|
| Current monthly payments (cards and personal loan) | £532/month | £532/month | £532/month |
| New monthly payment (£20,000 at 5.4%) | £136/month | £216/month | £381/month |
| Total repayable over the new term | £32,748 | £25,928 | £22,866 |
Over 20 years, the monthly payment falls by almost £400 but the total repayable is slightly higher than leaving the debts alone. Over 10 years the saving each month is still more than £300 and the total falls by around £6,000. Over 5 years, the total is about £9,000 lower and the monthly payment is still £151 less than now. Same debt, same rate, three different outcomes. Run your own figures in our debt consolidation calculator.
How can you avoid paying more overall?
Three approaches, which can be combined. The first is to ask for a shorter term on the consolidated borrowing. Some lenders run the additional amount over a shorter term than the main mortgage, and a broker will know which. Otherwise you can shorten the whole mortgage term, provided the higher payment passes affordability.
The second is to overpay. Most mortgage deals allow overpayments of around 10% of the balance each year without an early repayment charge, and the illustration above shows why that matters. If you consolidate over 20 years at £136 a month but keep paying what the 10-year figure would have been, £216, the extra £80 a month goes straight off the capital and the total cost falls toward the 10-year line. Treat the monthly saving as money already committed, not new spending room.
The third is the one people skip: do not run the cards back up. A consolidation that clears £12,000 of cards is only a saving if the cards stay clear. Many lenders pay the debts directly on completion, and some ask you to close the accounts; both help. If you are on a good fixed rate and the early repayment charge makes a full remortgage expensive, a secured loan over a shorter term achieves the same thing without touching the mortgage; see how to keep your mortgage rate and clear your debts. Either way, a qualified adviser will show you the total repayable for each term.
When is paying more overall still the right decision?
Sometimes the total is not the most important number. If £532 a month is not sustainable and you are close to missing payments, dropping to £136 or £216 a month can stop a slide into defaults, arrears and much more expensive borrowing. A higher lifetime cost, paid comfortably, may beat a lower one you cannot meet. That is a legitimate reason to consolidate over a longer term, with your eyes open about the total.
It is not the right decision if the underlying problem is that spending exceeds income, because the mortgage will absorb this round of debt and the cards will fill again. It is also not right if the affordability only works by stretching to the full term with no room to overpay, or if the amount you owe is large relative to your income. Our guide to how much debt is too much to consolidate looks at where the line sits.
Before committing, spend 20 minutes with a free adviser. MoneyHelper, StepChange and Citizens Advice look at your whole position, and tell you honestly whether consolidation, a debt management plan or something else is the sensible route. A remortgage is a serious step because your home is the security and may be repossessed if you do not keep up the repayments, and checking your options, with them or with an FCA authorised broker, will not affect your credit score.
Consolidating into your mortgage over the full term is the wrong move if you could comfortably clear the debts in five years anyway, because you will pay more for the privilege of a lower monthly figure you did not need. It is also wrong if your fixed rate carries a large early repayment charge, where a secured loan over a shorter term usually beats a full remortgage, or if you know the cards are likely to fill again. And if the payments you have now are already being missed, free advice from StepChange, MoneyHelper or Citizens Advice should come before any new secured borrowing.
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 cheaper to consolidate debt into my mortgage or keep paying the debts?
Over a full 20-year mortgage term, keeping the debts and paying them down is often slightly cheaper in total, even though the monthly cost is far higher. Over 5 or 10 years the mortgage usually wins on both counts. The term you choose decides the answer.
Can I add debt to my mortgage over a shorter term than the mortgage?
Some lenders allow additional borrowing to run over a separate, shorter term from the main mortgage, and a broker will know which ones. Where that is not offered, you can shorten the whole mortgage term or overpay, both of which reduce the total interest in the same way.
How much can I overpay on my mortgage after consolidating?
Most fixed and tracker deals allow overpayments of around 10% of the outstanding balance each year without an early repayment charge, although the exact figure is set by your lender and product. Check your mortgage offer, or ask your lender, before setting up a regular overpayment.
Does consolidating debt into my mortgage affect the interest on my existing balance?
If you remortgage, the whole balance moves to the new rate, which may be higher or lower than your current one, and any early repayment charge on the old deal applies. If you use a secured loan instead, your existing mortgage and its rate stay exactly as they are.
Will a lender show me the total cost before I consolidate?
Yes. A regulated mortgage illustration must state the total amount repayable and the APRC alongside the monthly payment, and a broker should show you how that total changes at different terms. Ask to see the figures for a shorter term before you decide.