Can I Get a Debt Consolidation Mortgage or Loan?
Answered on 13 February 2025 by Nicholas Mendes
I want to consolidate credit card debt into my mortgage. Can I get a debt consolidation mortgage and what are the best debt consolidation loan options? Can you remortgage to consolidate debt? What’s possible?
Yes, it is possible to obtain a debt consolidation mortgage or loan. Debt consolidation involves combining multiple debts into a single loan, typically with the goal of simplifying payments and potentially obtaining a lower interest rate.
Trying to manage multiple debts isn’t easy; different interest rates, introductory offers and end dates can make organising payments and balancing your finances difficult and confusing. This is where debt consolidation can become an option.
What Is a Debt Consolidation Mortgage or Loan?
Debt consolidation is when you take out a single loan or mortgage your property to pay off multiple existing debts. These debts typically consist of unsecured facilities such as credit cards, store cards, overdrafts and personal loans. If not managed in the right way unsecured debt can build up and become unmanageable.
How Does Consolidating Debt Work?
Consolidating multiple debts into one manageable single payment – like a monthly mortgage payment – can simplify your finances. You will know exactly how much interest you’re paying, what your monthly payments are and you will have a clear loan term with a fixed end date.
It’s important to note that while debt consolidation can help clear your debts and reduce the stress and worry of managing multiple bills, you could end up paying more overall, as the debt will be spread over a longer term.
Common Methods of Debt Consolidation
Debt Consolidation into Mortgage
- Further advance
- Remortgage
- Second charge
Debt Consolidation Loan
- Unsecured personal loan
Let’s break each of these options down.
Debt Consolidation Mortgage
Further Advance for Debt Consolidation
If you own a home and have equity in it, you may be able to take out an additional loan secured against your property, known as a further advance.
A further advance is a secured loan taken out with your existing lender, that sits alongside your mortgage (first charge). A further advance is on its own rate which will likely be different from your first charge, due to fact the further advance rate will be based on your current circumstances and market conditions (as opposed to when you first took out your existing mortgage).
This type of secured loan uses your home as collateral and is often viewed as a favourable option for debt consolidation.
Benefits to Choosing a Further Advance for Debt Consolidation
- You will typically have access to lower interest rates on a further advance compared to a second charge or unsecured loan
- If you’re tied into a long term fixed rate on your current mortgage, you could avoid facing ERCs (early repayment charges) with a further advance, as opposed to remortgaging
- You can keep your current mortgage rate on your first charge with a further advance – this is particularly useful if your first charge mortgage rate is low
- There will likely be less fees (e.g. arrangement fees, surveys) with a further advance compared to a second charge, as you’re using your existing lender
How Much Can You Borrow with a Further Advance for Debt Consolidation?
The maximum amount you can borrow on a further advance for debt consolidation is typically 85% - 95% total LTV (loan to value), depending on your affordability and the lender’s criteria.
Note that the higher the total LTV (mortgage and further advance), the less options you’ll have available. For example, some lenders don’t like to offer further advance at all if it means that the total LTV will increase 95%.
Debt Consolidation Remortgage
A debt consolidation remortgage is where you remortgage with a new lender, replacing your existing mortgage and raising additional funds to consolidate your debts. This can be an effective way to secure a better interest rate or more favourable terms, but it may involve arrangement fees and ERCs on your current mortgage.
Note that it’s best to remortgage when you’re coming to the end of your existing rate anyway in order to avoid ERCs and keep your (potentially lower) existing rate for as long as possible.
Benefits to Choosing a Remortgage for Debt Consolidation
- Many debts consolidated into one larger mortgage means you’ll have less debts to keep track of and everything will be under one rate
- If you’re coming to the end of your mortgage rate anyway, remortgaging onto a new deal while consolidating debt can be an efficient way to help manage your finances
- Remortgaging near the end of your deal can also be cheaper than a further advance as it means you won’t tie yourself to your existing lender and can instead search the whole market for a new rate
How Much Can You Borrow with a Remortgage for Debt Consolidation?
With any secured loan, affordability will impact your maximum potential borrowing.
A lender will need to consider any existing mortgage (first charge) currently on the property, along with any additional borrowing, as part of their affordability assessment.
Since you’re looking to consolidate debts, some lenders will calculate affordability based on your future circumstances, while others will assess it using your current financial situation.
The equity within your property will also be a key consideration for lenders. Some may stipulate a maximum loan to value (LTV) ratio, such as 85%.
Use our remortgage calculator for an estimate of how much you can borrow.
Debt Consolidation Second Charge
If your existing lender is unable to provide the amount required via a further advance, or if the ERC for remortgaging is prohibitively high, it may be worth considering a second charge loan.
A second charge is essentially a second mortgage you take out on a property that already has a mortgage (first charge) on it. It operates separately from the existing mortgage, with its own rate and terms – not dissimilarly to a further advance.
Second charges are not the same as further advances, however. For example, with a second charge, you have a second lender whose charge sits behind the first mortgage. This means that, the second charge lender has second priority in the event of repossession – i.e. the first charge lender will be paid first. Because of this, second charge mortgages are typically offered at higher rates than further advances or remortgages.
Benefits of a Second Charge Debt Consolidation Mortgage
- A second charge is a way to raise funds and release equity without disturbing your existing first charge and paying ERCs
- It allows you to keep the bulk of your secured borrowing on your first charge mortgage rate, rather than on a new, more expensive rate
- You can sometimes borrow at higher LTVs than on further advances or remortgages
How Much Can You Borrow on a Second Charge for Debt Consolidation?
Lenders work out how much you can borrow on a second charge for debt consolidation by looking at your property’s value, your outstanding mortgage balance, the equity you have in your property, your creditworthiness, your income and your mortgage affordability.
Learn more here: How Much Can I Borrow on a 2nd Charge Mortgage?
Or try our Second Charge Mortgage calculator for an estimate of what you could potentially borrow.
Debt Consolidation into Mortgage - Repayment or Interest Only?
With debt consolidation mortgage lenders offering further advances or remortgages typically want any debt consolidation to be on a repayment basis rather than interest only. This is because they want to see debt being reduced and cleared over a period of time, and a repayment mortgage makes this more apparent than an interest only mortgage.
Second charge lenders can be more flexible on this but will likely charge higher rates to offset risk.
Debt Consolidation Loan
Note that you can apply for an unsecured personal loan to consolidate your debts. These loans are not tied to any collateral, such as a house or car.
While the interest rates on unsecured loans are often higher than those for secured loans, they do not put your property at direct risk. The approval process typically depends on your creditworthiness, income, and existing financial commitments
Have You Considered Managing Your Finances in a More Structured Way?
The abundance of options and the ability to shift debt from one facility to another can be done with the right intentions, but without a structured plan to clear the debt, it could result in a cycle of debt or even put your home at risk.
Before looking to consolidate debt by taking out a mortgage on your property, ask yourself: Can the debt be reduced with a clear financial structure or budget in place?
It’s important to review your current income and expenditure to see if it’s possible to use any net disposable income rather than taking out a debt consolidation loan. There are many tools available online to help with budgeting, such as this tool from Citizen’s Advice Bureau.
What Are the Best Debt Consolidation Mortgages or Loans?
Firstly, before taking on additional borrowing it’s worth considering if you can use any savings to reduce your debts.
If this isn’t possible then what works best for you will depend on your unique situation as there’s no single best debt consolidation mortgage or loan solution.
A further advance or remortgage might be cheaper than a second charge, but these may not be an option depending on your circumstances.
It’s important to seek financial advice from a mortgage broker when considering a mortgage that allows for debt consolidation.
What Questions Will You Be Asked to Consolidate Debt?
To ensure we understand your circumstances and provide the right advice for debt consolidation, we’ll ask for extra details about your financial situation. This isn’t to catch you out or test your knowledge but to help us make an informed decision on whether this is the right option for you and which debts would be best to consolidate.
The conversation will cover:
- Your personal details
- Your income
- Your expenditure
- Your present and future circumstances
With regards to the debts, we will seek to understand:
- What types of debts you currently have
- Who they’re with
- The different amounts of debt
- Interest rates
- Any redemption costs
- Current monthly contributions/payments towards the debts
- How these debts built up – this will help ensure any future borrowing is manageable
Documents we will request before making any recommendations:
- Last 3 months' bank statements for all applicants
- Recent credit file for all applicants
- Recent credit card statements for all debts
- Loan statements for all debts
- Evidence of income – last 3 months' payslips or tax calculations and overviews
Considerations Before Pursuing a Debt Consolidation Mortgage or Loan
- Credit score: your credit score plays a significant role in the interest rates and terms you can secure. A higher credit score generally allows for better loan options
- Interest rates: compare the interest rates of the consolidation loan with the rates of your existing debts. The goal is to obtain a lower overall interest rate
- Loan terms: understand the terms and conditions of the new loan, including repayment terms, fees, and any potential penalties for early repayment
- Total cost of borrowing: when considering debt consolidation, it's crucial to assess the total cost of borrowing - including interest rates, fees and the loan term - to ensure it provides a genuine financial benefit. Seeking professional advice can help you determine the most suitable option for your circumstances
What Further Support and Debt Consolidation Help Is Available?
For many, debt consolidation and debt management can feel like taboo subjects, leading to feelings of isolation, stress, and anxiety. It's important to know that you are not alone, and there is external support available if you're experiencing payment difficulties.
Organisations that can help:
- StepChange Debt Charity
- Citizens Advice Bureau
- National Debt Line
- The Money Advice Service
How We Can Help You Find the Best Way to Consolidate Debt
There are many reasons why you might find yourself considering alternative options to clear debts. Changes in health, job loss, or family circumstances can all contribute to financial pressures.
Rest assured, whatever your situation, support is available. Our mortgage advisers are experienced in helping clients with diverse and unique circumstances find the right solution. We understand that everyone faces different challenges, may need extra support, or might lack confidence when discussing finances.
We want you to feel comfortable and confident knowing that the adviser you speak to will be fair, supportive, and committed to helping you make the right decision.
Call us on 0330 433 2927 or send us an enquiry.
Ask The Mortgage Experts answers are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them. We recommend you seek professional advice with regard to any of these topics where appropriate.