Remortgage With Credit Card Debt
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Remortgage With Credit Card Debt
Hemat Natha explains how remortgaging works if you have credit card debt and you want to consolidate it.
What is a debt consolidation remortgage? Can I remortgage with credit card debt?
Debt consolidation is where you’ve got some debts – that could be credit cards, loans, higher purchase or anything unsecured in terms of outstanding credit. You’re trying to bring them together into one manageable monthly payment.
With debt consolidation there are two key terms: debt counselling and debt management. Debt counselling is where an advisor will help you understand your options in relation to the debts. Debt management is where an advisor arranges a solution specifically to discharge or liquidate debts.
These are two very distinct things – advisers have to have specific permissions to help you with debt counselling or debt management.
How does credit card debt affect a remortgage? Will credit card debt affect my mortgage application?
If someone asks us about credit card debt, we’d look at all of their debts in total. We’d look at what’s outstanding, look at their rates and understand how they intend to pay them off. We will use a debt consolidation calculator to assess the advantage of securing that debt against the mortgage, or whether to suggest alternative options.
We might not move your mortgage to a different provider whilst borrowing extra money to pay off these credit cards. We might suggest an alternative option. It’s about exploring why you’re remortgaging and looking at the costs of securing your credit card debt on your mortgage, as it’s for a longer term.
With a credit card you can make payments whenever you want. With a mortgage, you can often only overpay up to 10%. You’re securing that debt over a longer term, as well, typically 20 or 25 years. So your advisor will be able to guide you using calculations to assess whether it’s actually the right thing to do.
What are the advantages and disadvantages of remortgaging with credit card debt?
The first advantage is to save money each month. That’s the most common reason for consolidating debts. But then the disadvantage is that it may cost you more in the long term.
You will have an improved rate. Typical credit card rates can be 19.9% up to 29.9%. Sometimes people’s balance transfer rates have expired and they can’t do a 0% balance transfer. Securing the debt onto your mortgage would get you a much lower rate.
But if the new mortgage has a higher interest rate than some of your individual debts, it wouldn’t be worthwhile. We’ve seen some personal loans at below 4%, although they’re not going to be that now, in February 2024.
Another advantage could be just having a single direct debit. You’ve got one payment going out instead of juggling multiple credit card payments. You’re also improving your credit rating by wiping out all your debt.
It allows you to then spend again – but I would really urge caution, though. You shouldn’t live beyond your means and build up the credit card debt again. Some credit card companies will lower your limits – and that’s another advantage.
You could obtain a cheaper mortgage while remortgaging. On the flip side, you might have exit penalties on the mortgage and restrictions on your overpayments. That’s why you need to sit down with us and go through it. Let us do all the calculations, get all the interest rates and really work out whether it is the right thing to do.
How much can I remortgage for if I have credit card debt?
There are two factors – the interest rates and the outstanding balance. The remortgage amount really depends on the amount that you earn and whether you can afford the new mortgage.
Each lender will have their own assessments. Some lenders won’t allow consolidation of debt if it’s over a certain amount or if it takes the Loan to Value over a certain level. We will make all those checks to confirm your eligibility.
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My mortgage application was declined. What can I do?
First of all, we need to ascertain why a lender would decline an application. Generally when you come to us as advisors, we will do a lot of research and checks before suggesting debt consolidation.
There may be instances where an underwriter for a mortgage provider doesn’t feel you will meet the affordability of the mortgage. Then we would go to the next cheapest lender and see what they can do.
We present you with the rates and costs and confirm whether it’s the right decision to consolidate your debts. So don’t need to worry too much. Just come to us and we will help you. If a mortgage was declined, we just try and arrange something different.
What is the eligibility criteria for a remortgage for debt consolidation?
We would typically start by understanding your income and then looking at all of your debts and their interest rates. We look at the monthly payments you’re making and the motivations for clearing the debt.
We will look at whether other options to consolidate that debt are more viable. The eligibility question comes in when we have to check with the lender for borrowing purposes. If they are happy for you to consolidate, we confirm you can afford the mortgage and then make the relevant applications to the lenders. The extra step is about understanding your debts and rates and taking it from there.
Can you consolidate credit card debt twice?
We have seen this in the past. Consolidating debt twice suggests that you’re increasing the borrowing again for customers who may be a bit vulnerable. We treat those customers with more care.
We need to understand why they have become over indebted against their income again. Are they living beyond their means? Because you’re not going to be able to consolidate three or four times.
Has there been a change of circumstances in their lifestyle? There are a lot of considerations to double check before advising this again. We don’t want to see people becoming over indebted – we do really care about our customers.
Is it better to have a personal loan or credit card debt when remortgaging?
This is a great question. When we’re working to understand the total debt you have on your credit cards, if it’s less than a certain amount and you want to simplify your finances, a personal loan could be an option.
We don’t arrange personal loans, but we could suggest it. A personal loan is over a shorter period of time – typically from a year upwards. Some providers offer terms over five or six years. It means you’re paying your debt off over a shorter period of time.
The monthly payments may be a bit higher and we need to see if you’re making a saving on the interest rates. It all depends on the amount of credit card debt you have. It could get someone on track without putting the debt onto a mortgage and paying interest over 25 or 30 years.
What else do we need to know about remortgaging with credit card debt?
I would just say that if you do have credit card debt and you’re worried about it, come to us. Don’t bury your head in the sand.
This could be the option for you – but equally, it might not. As regulated mortgage advisors our interests are to make sure that we advise you properly.
We will look at the savings you could make to advise whether it’s appropriate to secure this against your mortgage – or advise you of alternatives. We’ll look at all the costs involved. We look over the long term and short term to make sure that it is the right thing to do.
Everyone’s circumstances are individual. Everyone has different situations, hopes, aspirations and income. A good advisor like us will help you navigate that complex landscape.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up with your mortgage repayments.
You may have to pay an early repayment charge to your existing lender if you remortgage.
A fee for our service is charged. This is typically £495 but the exact amount will be dependent upon your circumstances and we will discuss this with you.
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