How to Get a Debt Consolidation Mortgage (and 6 Alternative Options)

Financial difficulties can happen to anyone, especially in uncertain economic times. It's all too easy for debt to mount up, and before you know it you can owe money to several lenders charging you more interest than you can afford to repay.

We've all heard the horror stories of getting caught in a cycle of payday loans and credit card transfers, with these types of unsecured finance typically coming with much higher APRs. But if you already own a good amount of equity in your home, there is a way to ease the burden.

A debt consolidation mortgage may hold the key. By using the equity in your property to repay debts, you can replace multiple repayments with a single loan, often at lower interest rates and with more manageable monthly repayments.    

At Clifton Private Finance, our specialist mortgage team is on hand to help you explore your potential options if you're looking for a debt solution to reset your position.

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Table of Contents

1. Why Use Debt Consolidation?
2. Option 1: Unsecured Loans & Balance Transfers
3. Option 2: Homeowner Loans (Second-Charge Mortgages)
4. Option 3: Remortgaging for Full Consolidation
5. Option 4: Bridging Finance (For Niche Scenarios)
6. Option 5: Lifetime Mortgages (For Retirement)
7. Moving Forward: Advice After Consolidating Debt

What Is a Debt Consolidation Mortgage?

A debt consolidation mortgage is a specialised loan that is secured against the equity in your home. For many homeowners, the single largest asset they own is their home. The money you have put in over the years of paying off your existing mortgage becomes equity in your home and can be used as a guarantee for a secured loan or full remortgage, which is then used to repay other debts.

This security reduces the risk for lenders, leading to:

• More competitive interest rates
• Greater chances of approval
• Improved flexibility with terms
• Wider range of lenders to choose from

With a debt consolidation mortgage, you take the balance of all your existing debts and pay them off with the new loan.

This means:

• One monthly payment instead of many
• A single, lower interest rate
• Lower overall monthly repayment
• Improved monthly cash flow
• Simplified money management

Using a debt consolidation mortgage to pay off debts will help you reset your financial position, clearing credit cards, overdrafts, and expensive unsecured personal loans in one clean sweep.

How Does a Debt Consolidation Mortgage Work?

The goal with a debt consolidation mortgage is to save you money and simplify your finances. It is a powerful stabilising tool that can get you back on track with your monthly outgoings and help you repair any damage done to your credit score.

Importantly, it can be used by any homeowner, whether you have an existing mortgage or not.

If you have an existing residential mortgage, the debt consolidation mortgage:

• Is a remortgage
• Replaces your existing mortgage with a new one
• Rolls together all your other debt with your current mortgage to form one single secured loan    

If you do not have an existing residential mortgage and own your house outright, then the debt consolidation mortgage:

• Is a new mortgage
• Rolls together all your debt to form one single secured loan

You do not have to use your existing lender to get your debt consolidation loan, and often will find a better deal with a new lender.

At Clifton Private Finance, one of our mortgage experts will work on your behalf to compare debt consolidation mortgages from multiple lenders to find a new loan that represents the best mortgage deal for you.

How to Get a Debt Consolidation Mortgage: the Process

In order to get a debt consolidation mortgage, you will typically need to take the following five steps.

Our specialist mortgage team is on hand to help you at each stage so that your case is presented in the best possible way to potential lenders.

1. Create a Realistic Debt Management Plan

It is important that you have a definitive idea of the sum you need to repay your existing debts and your current monthly outgoings.

This involves listing all current debts and calculating the repayment totals on your existing loans. For some, this may simply be the balance of the debt, while others may have a settlement amount that includes early repayment charges.

If your existing mortgage is midway through a fixed term, it may be that the early repayment charges are considerable, and this must be considered before moving ahead with a consolidation remortgage.

You will also need to compare the total cost of the new secured borrowing against your existing unsecured debts to make sure it will actually save you money.

With a full understanding of the sum required, as well as the current interest rates and charges, it’s possible to evaluate the different debt consolidation mortgages on offer and select the right mortgage deal.

2. Select an Appropriate Lender

Working with your Clifton Private Finance adviser, you can compare different mortgage rates and lender terms, while reviewing your existing loans, to find the right fit for you.

If your income has fallen or your debts have increased since you took out your original mortgage, getting approved for a further advance or remortgage may be more difficult.

3. Property Valuation and Equity Determination

Your property needs to be officially valued to assess your available equity and therefore the maximum sum available to you. Different lenders will offer different loan-to-value (LTV), and at Clifton Private Finance, we can access specialist lenders to obtain loans as high as 90% LTV.

Many lenders cap loans secured for debt consolidation at around 80–85% LTV, depending on affordability and the property value.

LTV affects:

• Mortgage Rates: Lower LTV mortgages often have better interest rates
• Eligibility: Lower LTV debt consolidation mortgages are more likely to be approved
• Monthly Repayments: With lower interest rates, a lower LTV mortgage deal will have more manageable monthly payments

Please note that when you increase mortgage borrowing, this reduces your equity in your home. This can matter if you want to move or if property prices fall.

4. Submit a Debt Consolidation Mortgage Application

Each lender will have slightly different criteria and its own application process.

At Clifton Private Finance, our brokers conduct a comprehensive pre-approval process that checks your application prior to submission, maximising the chances of success.

Following this stage, the full mortgage application is made.

5. Consolidate Existing Debts into a Single Mortgage Payment

Using the money from the debt consolidation mortgage, all existing debts are repaid, and you are able to move forward with one consolidated monthly payment.

Typically, this will be on a much lower interest rate and will save you a significant amount on repayments each month. However, it is important to understand that your overall debt is now larger and repayable for longer.

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Pros and Cons of a Debt Consolidation Mortgage

Though it is a powerful financial tool, a debt consolidation mortgage is a loan secured on your property and must be properly considered before moving forward.

A Clifton Private Finance mortgage expert will be able to discuss your circumstances and help make sure that you do not take on secured debt without a full understanding.

Debt Consolidation Mortgage Pros

• Lower interest rates: As they are secured on property, mortgages have a low level of lender risk. This enables lenders to offer superior interest rates to other finance products, such as unsecured debt consolidation loans, personal loans, or credit cards.
• Long-term spread: Debt consolidation mortgages are available over long terms, reducing the impact on your monthly finances. Larger levels of debt consolidation can be structured over years to help with immediate affordability.
• One monthly payment: One of the difficulties with juggling several debts is that payments can be missed, with important direct debits bouncing due to their lack of funds. A single consolidated mortgage payment makes administering your finances significantly simpler and reduces the chance of later financial difficulty.
• Improve your credit score: Over time, a well-managed debt consolidation mortgage will repair your credit history, opening the door to future funding needs. While care must be taken not to overextend credit, borrowing money for sensible needs at a later time will be significantly easier.

Debt Consolidation Mortgage Cons

• The debt is secured on your home: If you miss payments on your mortgage, you may put your home at risk of repossession.
• Increased total debt: Though the interest rate of a mortgage is likely to be substantially cheaper than credit cards or unsecured loans, because of the longer repayment term and the extra interest securing debts over more years, you may pay more in total before the debt is fully settled when you roll other debts into your mortgage. Your Clifton Private Finance adviser can help you calculate the long-term cost of consolidating debt in this way.
• Additional fees: Debt consolidation mortgages may also involve arrangement fees, valuation costs, broker fees, and legal costs that should be considered before proceeding. Additionally, existing debts, including any current mortgage, may incur fees and charges for full settlement. Discuss the full financial cost of consolidating debt with your adviser before finalising the application.
• Post-consolidation money management: Immediately after you repay debts, you will gain access to large sums of credit that can be reused, such as cleared credit card balances. The temptation to overspend can be considerable, especially if you have been struggling financially for some time. This can create a debt spiral that leaves you in a worse position. To consolidate your debts successfully over the long term, you must not fall into bad spending habits.

Why Use a Specialist Broker for a Debt Consolidation Mortgage?

Most major lenders offer debt consolidation mortgages, and if you already have a competitive mortgage deal, your existing lender may allow additional borrowing without requiring a full remortgage.

Alternatively, you may find a more suitable long-term solution with a new lender.

In many cases, however, a successful application may be difficult if you are already struggling to repay debts and have a poor credit history.

As a specialist mortgage broker, Clifton Private Finance has access to the entire UK marketplace of mortgage lenders, including those more willing to consider complex financial circumstances.

These include:

• Bad credit lenders
• Lenders experienced with self-employed sole traders
• Lenders with underwriting that considers multiple income streams
• High LTV lenders
• Specialist property-type lenders

Speaking to an independent mortgage expert allows you to compare products, evaluating different mortgage rates and term flexibility to choose the debt consolidation mortgage that best fits your individual needs.

An Illustrative Example of A Debt Consolidation Mortgage

Ricardo is struggling financially. In the past six years, he had to lean on his credit cards and overdrafts, with his outgoings exceeding his income for some time.

To manage this as best as he could, he used 0% balance transfer credit cards and a personal loan to clear his overdrafts, but ultimately reused the credit available to him. He is paying over £500 per month in interest alone, suffering credit card debt interest rates between 29% and 40% in some cases.

Ricardo’s debts include:

• £2,000 in bank account overdrafts, approx. £40 per month in interest
• £6,000 on a credit card at 35%, approx. £175 per month in interest
• £4,000 on a credit card at 29%, approx. £100 per month in interest
• £6,000 spread across other credit cards, approx. £200 per month in interest
• £11,500 remaining on a personal loan, payment of £400 per month

He also has a car finance lease agreement for £290 per month. However, this is well-maintained and does not need to be part of Ricardo’s new debt management plan.

His current mortgage has £130,000 remaining and is currently at a fixed rate of 6.1%, but is coming to the end of the fixed rate term. He is paying a little over £1,100 per month with fifteen years remaining on the mortgage.

A debt consolidation mortgage would need to total £160,000, combining the existing mortgage balance of £130,000, plus £30,000 to clear the debts.

Ricardo’s house is valued at £248,000. A £160,000 mortgage represents an LTV of 65%.

With Clifton Private Finance’s help, Ricardo is offered a 65% LTV, fifteen-year mortgage deal covering the full £160,000 he needs, on a five year fixed rate of 5.85%. The monthly repayments will be £1,337.

This makes a huge difference to Ricardo. Previously, he was paying a minimum of £2,305 every month:

• £515 per month in credit card interest, and not managing to reduce the balance at al
• £400 per month repaying his personal loan
• £1,100 on his existing mortgage
• £290 per month for his car lease

With the debt consolidation mortgage in place, his outgoings are reduced to £1,627:

• £1,337 per month on a new debt consolidation mortgage
• £290 per month for his car lease

More significantly, however, Ricardo:

• No longer has any credit card debt, whereas his previous situation was making him unable to reduce the balance
• No longer has an overhanging personal loan
• Has not extended his mortgage ter
• Has far fewer payments per month and considerably less stress regarding his outgoings
• Is over £650 per month better off
• Will see his credit score improve over time

6 Debt Consolidation Loan Alternatives

While a debt consolidation mortgage typically offers a low rate and affordable monthly payment, that’s so important when managing multiple debts, there are several other options worth consideration.

1. Homeowner Loan

A homeowner loan, also known as a second-charge mortgage, is a secondary loan secured on your property in a similar way to a mortgage. However, unlike a remortgage that replaces your existing mortgage, a homeowner loan sits alongside it, leaving the current mortgage in place.

This can be useful if you already have a competitive residential mortgage in place and don’t want to lose its advantages. It is also a strong alternative if you are locked into a fixed term with significant early repayment charges if you settle immediately.

Because homeowner loans are second-charge, they do not have the priority of the main mortgage and are slightly higher risk for the lender.

This means that they often have slightly higher rates than a remortgage. However, they typically remain competitive when compared to unsecured options.

2. Bridging Loan

A bridging loan provides a solution for rapid debt consolidation when a house sale is planned. A different type of loan structure, bridging is a short-term loan with no monthly repayments and instead, a defined ‘exit’, where it is settled in full once a certain event occurs.

This can be extremely useful for homeowners looking to sell a property to clear all outstanding debt, especially if the existing debts are straining monthly finances or harming affordability calculations for needed funding.

Typically this is a downsizing scenario, where a new home is purchased at a lower price at the same time as other debts are repaid, and the profit from the larger home is used to repay the bridging loan once it sells.

However, bridging finance can also work if you have an investment property that you plan to sell, but need the proceeds now to repay other debts.

Bridging finance can be used as follows:

• Put existing home on the market for sale
• Secure bridging finance to purchase new home and repay all existing debts
• Move forward with new plans, free of other debt
• Sell the initial home
• Use proceeds from property sale to repay bridging

3. Equity Release Mortgage

For homeowners aged 55+, equity release products, which include lifetime mortgages, can be used to repay other existing debts. Lifetime mortgages have no monthly repayment, but are settled through the sale of your home upon your passing, completely eliminating the ongoing worries of meeting debt repayments.

At Clifton Private Finance, our experienced equity release team can help you evaluate the pros and cons of lifetime mortgages and similar products.

4. Further Advance

A further advance is additional borrowing on your existing mortgage with your current lender, that may either be provided at the current rate or exist with its own rate alongside the main balance.

Additional borrowing is similar to a homeowner loan, in that it doesn’t disturb the main mortgage and won’t trigger any early repayment charges.

Discuss additional borrowing with your Clifton Private Finance adviser to compare it with both homeowner loans and remortgages as alternatives. With a wider lender range, the mortgage deals available elsewhere may be superior to the further advance rate offered by your existing lender.

5. Credit Card Balance Transfer

For smaller debts, a credit card balance transfer can provide a short-term solution. Typically between 6 and 30 months, a zero-interest credit card balance transfer can provide immediate breathing space to help with debts.

However, it still depends on your available credit limit, so it may not cover all current debts.

Financial vigilance is essential because it can be easy to fall into a debt spiral when transferring balances and releasing existing credit levels. Headline 0% rates can quickly become high 30%+ annual interest rates once the interest-free period is over, leading to increased debt difficulty.

6. Unsecured Personal Loans

Unsecured debt consolidation loans may offer an alternative for non-homeowners looking to repay debts but are unlikely to offer a competitive rate when compared to the secured loan options explored above.

The difference in interest rates between secured and unsecured debt is especially relevant when consolidating debt, and should be the main focus when evaluating unsecured debt consolidation loans.

Find the Right Debt Consolidation Solution with Clifton Private Finance

At Clifton Private Finance, our mortgage team has the expertise you need to consolidate your debt. With an understanding of the position and needs of those struggling to meet existing debt obligations, we will explore the specialist lenders and products that best match your personal circumstances.

With Clifton Private Finance, you gain access to the wide UK lender marketplace.

We will help you:

• Build a comprehensive overview of your current financial position
• Understand any early repayment charges or hidden costs of settling debts
• Compare remortgages, further advances from your current mortgage lender, and homeowner loans from other banks and lenders
• Find options which match your equity level, balancing LTV with your needs and considering how mortgage pushes can limit future remortgage flexibility if borrowing raises your LTV
• Take you through a pre-approval process that reduces impact on your credit score by avoiding unsuccessful applications
• Match you to lenders who understand and can work with your real circumstances

To reduce the worry and stress your existing debts are causing and open the door to a more relaxed financial position, speak to a Clifton Private Finance debt consolidation mortgage expert today.