Thinking about using a mortgage to pay off debts? There’s a lot to consider, and the type of mortgage you can get will all depend on your unique situation. In this Guide, you’ll find what you need to know about using a mortgage to clear debt.
Yes, you can use a mortgage to pay off debt. But it’s not a decision to be taken lightly, and your individual situation will affect whether or not you get accepted. While it might seem like a no-brainer to roll your debts into one mortgage, there’s a few different things to consider. While your monthly repayments are likely to be a lot lower, you’ll probably end up paying more interest in the long run, and you’ll be putting your home at risk.
If you already own a home, remortgaging to pay off debt is an option. Lots of people remortgage to consolidate debts as a way to help them manage their outgoings. You can either take a lump of cash out of your home (known as releasing equity) and use this to pay off your debts, or you can remortgage your deal to reduce your monthly repayments, meaning you’ll have more money available to repay your other debts.
In many cases, remortgaging can be an effective way to stabilise your finances and pay off some existing debts. Consolidating your debts into one monthly payment can be a lot more manageable and easier to keep on top of and can also make them more affordable overall. On the flip side, your monthly payments will go up, so it’s important to make sure you’re fully informed of the impact that remortgaging will have so you’re still able to keep up with repayments.
Yes, it’s possible to use a mortgage to pay off a Debt Management Plan (DMP), but there’s not many mortgage lenders who’ll offer this to you. Most high street banks will turn you down for a mortgage with a DMP, so you’ll need to go a more specialist route.
Some specialist mortgage lenders will let you borrow extra on your mortgage in order to pay off your DMP. Like with any form of debt consolidation, it's really important to get independent financial advice. Our Mortgage Experts can look at your situation, and suggest options you might not have thought about.
When you’re in an IVA, there will be restrictions on your property. Your IVA agreement will include terms for your property, which will apply for the entire time you’re in the IVA. You’ll need to check your agreement to find out what the specific restrictions are. Usually, you won’t be able to remortgage while your IVA is still in place.
It could still be possible to pay off an IVA by remortgaging, but it’ll be tricky to find a bank willing to lend to you while your IVA is still active. That’s why it’s really important to work with a mortgage broker that specialists in IVAs. Our Mortgage Experts have access to a wider range of mortgages and lenders that you wouldn’t be able to apply for on your own.
Having debt won’t stop your mortgage application in its tracks. Any form of debt repayment will affect how much you can borrow, but it all depends on your unique situation and what type of debts you have.
Knowing what mortgage lenders view as debt can be half the battle. Things like credit cards, loans, hire purchases, CCJs and IVAs are all viewed as debt, with some carrying more weight than others. For instance, a missed mobile phone payment is considered less severe than a bankruptcy.
Debt is generally divided into ‘good’ and ‘bad’ categories. ‘Good’ debt is the lower-risk stuff, such as government student loans or car finance. ‘Bad’ debt is the more costly side of borrowing, such as payday loans or credit cards.
But just because you have what’s generally considered ‘bad’ debt, doesn’t mean you can’t get a mortgage, and it certainly doesn’t make you a bad person. It’s definitely possible to get a mortgage with debt such as credit cards, you just need an experienced debt mortgage broker at your side to help you through the process.
It’s important to remember that debt isn’t the full picture. When applying for a mortgage, a number of factors will be taken into consideration, such as your income, your deposit, and your monthly outgoings. Mortgage lenders use a Debt to Income Ratio to work out how affordable your debts are compared to what you earn.
To work out your debt-to-income, you’ll need to do a bit of maths. Use the following equation to calculate what your income looks like compared to your outgoings.
(Total monthly debt repayments ÷ monthly income before tax) x 100 = Debt to income ratio (%)
A lot of mortgage lenders would prefer you to have a debt-to-income ratio of below 43%, with some preferring it to be lower than 36%.
Generally, the lower your debt-to-income ratio, the better. But don’t worry if yours is on the higher side. Mortgage lenders all have their own criteria they use to decide whether or not to lend to people. If you’re worried about bad credit or a low credit score, make an enquiry to speak to one of our Mortgage Experts.
Having debt won’t dash your dreams of owning a home. It’s absolutely possible to get a mortgage with debt, but you might be wondering if it’s best to pay down or clear your debts before applying for a mortgage. It all depends on your situation, things like how much debt you have, what your income is, and whether you have any savings should all be considered.
Simply put, the less debt you have, the easier it’ll be to get a mortgage. But it’s not the only thing that mortgage lenders will look at, so don’t panic if you can’t clear all your debts when it comes to mortgage time.
Everyone’s situation is unique, and mortgages are a big commitment. That’s why it’s so important to get independent financial advice before making a decision. Our Mortgage Experts are experienced debt mortgage brokers, with a proven track record of making mortgages possible for people who’ve struggled elsewhere. They’ll be able to look at your circumstances and show the different options available to you - some you might not have previously considered.
Mortgages for debt consolidation are really common, and a number of mortgage lenders offer them. But the best way to find the right mortgage deal is to work with a debt consolidation mortgage broker. Our Mortgage Experts live and breathe the mortgage market, and have great relationships with lenders. They’ll work hard to find the right deal at the right rate, and give your application the best chance of being accepted.
Make an enquiry and one of our friendly experts will call you back and explore your debt consolidation mortgage options.
Our Mortgage Experts are fully-qualified with experience in bad credit, self-employed and complex mortgages. They have a proven track record of getting mortgages for people who’ve been rejected elsewhere.