Remortgage to pay off debt

When you remortgage to pay off debt, you take out a new mortgage that's larger than your current outstanding balance. The new mortgage first repays and replaces your existing one in full, and the extra amount borrowed, the difference between the new loan and what you owed before, is released to you as cash, which you then use to clear your credit cards, personal loans, car finance or overdraft. Your existing mortgage is redeemed and closed, and from that point on you have one lender, one interest rate and one monthly payment covering both your home and the debt you've consolidated.

This is different from a secured loan (also called a homeowner loan or second charge mortgage), which leaves your existing mortgage completely in place and adds a separate, second loan alongside it. It's different again from a further advance, where your existing lender adds extra borrowing to your current mortgage account rather than you moving to a new mortgage altogether. A remortgage is the only one of the three that genuinely replaces your existing deal, which is exactly why the timing of your current fixed rate matters so much to whether it's the cheapest route.

A remortgage to pay off debt tends to be the cheaper route when your existing mortgage deal has already ended, or is close to ending, because you're moving to a new deal at broadly the same point you'd be remortgaging anyway. In that situation there's no early repayment charge to weigh up, mortgage rates are usually lower than secured loan rates, and you end up with a single payment rather than two separate loans to manage. If your current deal is on your lender's standard variable rate already, or ends within the next few months, a remortgage is usually worth comparing first.

It tends not to be the cheaper route if you're mid-way through a competitive fixed rate deal. Leaving a fixed rate early almost always triggers an early repayment charge, commonly a percentage of your outstanding balance that reduces the closer you get to the end of the deal, and this can run into several thousand pounds depending on how much time is left. In that case, a secured loan, which leaves your existing fixed rate completely untouched, will often work out cheaper overall even though its own rate is higher, simply because you avoid paying the early repayment charge at all. A further advance from your existing lender is worth checking too, since some lenders will add borrowing without disturbing your existing deal's rate on the original balance.

The only reliable way to know which route wins for your specific numbers is to have someone add up the early repayment charge, the rate difference, and the fees on each option side by side. That's precisely the comparison a whole-of-market broker should walk you through before you commit to anything.

There's also a middle option worth knowing about: some lenders will let you do a product transfer with additional borrowing, staying with your existing lender on a new rate rather than moving to a different one, while still adding extra borrowing on top. This can sometimes avoid a full remortgage's legal and valuation costs, though the extra borrowing is usually priced at that lender's own additional-borrowing rate rather than their headline remortgage rate, so it's worth comparing against a full remortgage with a new lender and against a secured loan before assuming it's the cheapest path.

A remortgage to pay off debt follows broadly the same process as any remortgage, with one addition: the lender needs to understand what the extra borrowing is for. First, a broker reviews your current mortgage, your property's estimated value, and how much extra you want to borrow, and checks whether an early repayment charge applies on your existing deal. Second, you apply to a new lender (or, in some cases, your existing lender offers a product transfer with extra borrowing), who arranges a valuation of your property and assesses your income and outgoings against the new, larger loan amount, since the affordability check has to cover the whole new mortgage, not just the extra you're borrowing.

Third, once the new lender has set out their terms, solicitors handle the legal side: redeeming your existing mortgage, registering the new one, and releasing the extra funds, which are typically paid to you to clear your debts directly or, in some cases, paid straight to the creditors. A remortgage generally takes longer than a secured loan, often six to eight weeks from application to completion, because the entire mortgage is being replaced rather than a second loan simply being added, though the exact timeline depends on your lender, your solicitor, and how quickly your existing lender confirms your final redemption figure.

One practical detail worth planning around: most mortgage offers are valid for a fixed window, commonly three to six months, so if your current deal doesn't end for a while yet, it's worth timing your application so the new offer doesn't expire before completion. A broker will usually time the application to your existing deal's end date for exactly this reason, so you move straight from one deal to the next without a gap on your lender's standard variable rate in between.

How much extra you can borrow when remortgaging to pay off debt comes down to two things: how much equity you have, and what the new lender's maximum loan to value allows. Equity is your property's value minus what you currently owe. If your home is worth £300,000 and your existing mortgage balance is £180,000, you have £120,000 of equity, though a lender won't let you borrow against all of it. Most mainstream lenders will lend up to somewhere between 80% and 90% loan to value for a remortgage with additional borrowing, depending on the lender, your income and your credit history.

Taking that same example, if a lender is comfortable up to 85% loan to value, the maximum new mortgage would be £255,000, which is £75,000 more than the existing £180,000 balance, giving you up to £75,000 of extra borrowing to clear debts, subject to passing the affordability assessment on the full new loan amount. Affordability is checked independently of equity: the lender looks at your income, your other outgoings once the new mortgage payment is in place, and your credit history, in the same way as any mortgage application. A default, missed payment or CCJ doesn't automatically rule out a remortgage, since specialist lenders in the adverse credit mortgage market work with homeowners in this position, though the rate on offer is likely to be higher than the best rates in the market.

It's also worth remembering that loan to value works both ways: a higher loan to value after remortgaging can mean you no longer qualify for a lender's best rate bands, even if you did on your original mortgage, because the amount you owe relative to your property's value has increased. This is one of the trade-offs a broker should flag alongside the raw amount you could release, since a smaller amount released at a better rate band can sometimes cost less overall than borrowing right up to a lender's maximum.

Here's an illustrative example of what remortgaging to pay off debt can look like, using the rates set out below, for a homeowner whose existing fixed rate has already ended.

In this example, the combined monthly outgoing falls slightly, from £1,049 to £1,022, and the homeowner is left with one payment instead of three. But the total repayable figure includes the whole mortgage over the full 20-year term, not just the £16,000 that was released to clear debt, which is why it's important to compare like with like: the saving here comes mainly from clearing the 24.9% credit card balance and the 12.9% personal loan at a much lower rate, spread over a longer period. The disclaimer above applies to every figure in this example.

The central risk with any remortgage to pay off debt is the same as with a secured loan: you're converting unsecured debt into debt secured against your home, and if you fall behind on the new, larger mortgage payment, your home may be repossessed. Because the whole mortgage is affected, not just a separate second loan, this is worth taking seriously, particularly if the extra borrowing is a large proportion of the new mortgage.

Spreading debt over a full mortgage term, often 20 or 25 years, instead of the 3 to 5 years it might have taken on the original credit cards or loan, usually means paying more interest in total over the life of the mortgage, even though the monthly payment can fall, as the worked example above shows. Many mortgage lenders allow overpayments, commonly up to 10% of the balance a year without an early repayment charge, so putting some of any monthly saving toward overpaying the mortgage is one way to reduce that extra interest if your budget allows it.

It's also worth checking the maths carefully if you're mid-fixed rate, since an early repayment charge can turn what looks like a lower headline rate into a more expensive option overall once the charge is added. And if your total debt is relatively small, the arrangement fees, valuation costs and legal fees on a full remortgage can outweigh the benefit compared with a smaller secured loan or an unsecured option. If you're unsure whether your income can comfortably support the new payment, it's worth speaking to a free debt advice charity before applying for anything.

Finally, remortgaging only resolves the shape of your monthly payments, not the underlying spending that led to the debt in the first place. Homeowners who consolidate through a remortgage and then rebuild credit card balances on top can end up in a more difficult position than before, carrying both a larger mortgage and fresh unsecured debt. A broker worth using will ask about this directly rather than simply processing the application, and won't push a remortgage on you if a smaller, cheaper step would do the job just as well.