Other Debts and Loans Consolidated Into Your Mortgage? Here’s What You Need to Know

Laura Broad[1]

Laura Broad

Money Savings Advice Debts & loans consolidated into a mortgage

Having all of your debts and loans in one place might feel like it makes life easier. No more being chased by credit card companies or personal loan lenders, everything you owe is tied up in your mortgage, and you continue your repayments as before.

Can I Consolidate My Debts Into My Mortgage?

Consolidating your debts into your mortgage can bring down your monthly costs, but it will mean your home is at extra risk from the new secured debt, and you'll pay more in the long term.

But is this a good idea? As it turns out, consolidating other debts and loans into your mortgage can come with a heavy price tag in the form of putting your home at risk if anything goes wrong with your mortgage repayments further down the line.

This guide looks at the practicalities of consolidating your debts into your mortgage, what alternatives there are and what to do if you've decided to borrow more on your mortgage.

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What Is Debt Consolidation?

If you've got lots of debt spread across different places, it can be hard to manage. Each credit card or loan charges different amounts of interest, so it's easy to lose track of how much your repayments for each are going to be.

Merging all of your debts into one single loan can make things easier. With consolidation, you borrow just enough money to pay off all of your existing debts. Then you owe money to just one lender rather than several.

The appeal here is that consolidation can make your monthly payments lower and easier to manage. But this also comes at the cost of you having to pay off the new loan for much longer, meaning it will cost you significantly more in the long run.

Can You Use Your Mortgage to Consolidate Your Debts?

You can use your mortgage to consolidate your debts. Your mortgage is essentially one big loan after all. But this is a risky move. Let's look at what you need to consider.

You’re Putting Your Home at Extra Risk

By moving your debt from things like credit cards or personal loans into your mortgage, you end up securing that debt against your home when it wasn't before. If you miss mortgage repayments or slip into arrears, you're at risk of having your home repossessed.

The Debt Stays With You for Longer

Consolidating your debts into your mortgage means they follow you around for the term of the mortgage - usually 20 or 25 years at least. Not only can that be more psychologically taxing, but it's also a much longer time to have to worry about repayments for.

It’ll Cost You More in the Long Run

The appeal of using your mortgage to consolidate debts is the lower interest rate. After all, what looks better - an 18% interest rate on a credit card or 5% on a mortgage? But it's not quite as simple as that, as with a mortgage you pay the balance off over a much longer time.

This means you pay much more interest for the privilege of spreading out your repayments.

Type of borrowing Debt amount Interest rate Time until repayment Amount of interest paid
Credit Card £10,000 18% 5 years £5,200
Mortgage £10,000 added to £100,000 5% 25 years £7,500

Figures purely for example purposes and may not accurately reflect current market rates.

You Could End Up in Negative Equity

Once you’ve absorbed all of your other debts into your mortgage, it’s easy to feel like it’s all gone away. Out of sight, out of mind. But this isn’t the case. Continuing to clear credit card debt with your mortgage, for example, is a risky habit to get into as you are securing more and more debt against your home. If this kept happening over time, it could mean you have a mortgage that’s higher than the value of your home - otherwise known as negative equity.

To be on the safe side here and not fall into that trap, you could look at consolidating your debt into your mortgage as a one-time, last resort thing.

Is It a Good Idea to Consolidate Your Debts?

The answer to this is “it depends”. For some people, debt consolidation is their only option - for example, if they’re really struggling with large credit card repayments, owe a lot of money to lots of different places or have a poor credit history.

Consolidating your debts into your mortgage can make sense if:

  • You have enough equity tied up in your property to be able to borrow more money against it
  • You’re able to remortgage to get a better deal from your current or a different lender
  • You aren’t losing money having to pay fees or charges to change your mortgage
  • You use the breathing space it offers you to get your spending under control

If you’re struggling with paying your debts, it’s a good idea to speak to a debt advisor before borrowing more money. They might be able to help you negotiate a better repayment plan.

Alternatives to Consolidating Your Debt Into Your Mortgage

For everybody else, there are likely much cheaper and less risky ways to pay your debts. Make sure to check your credit score and carefully crunch the numbers to compare what you’ll owe before shifting your debts onto your mortgage. Some alternatives include:

  • A cheaper personal loan. You can consolidate debts into a single personal loan that isn’t secured against your home. The interest rate may be slightly higher than your mortgage, but paying it off more quickly saves you money overall.
  • Balance transfer credit cards. If your debts are tied up in credit card spending, you may be able to move them onto a new card with a lower interest rate if you have a decent credit history. A word of warning though - you’d need to pay them off quickly (e.g. within a couple of years) to save the most money.

What to Do if Your Debt Is Already Consolidated Into Your Mortgage

If you’ve already taken the plunge and consolidated your debts into your mortgage, think carefully about whether you were made aware of the risks when you took this step.

If you were given bad advice about mortgage consolidation, it’s possible the mortgage was mis-sold to you. Mis-sold mortgages put you at risk of financial harm and should be complained about - you may even be owed compensation if you’ve been left out of pocket.

How Can Money Savings Advice Help You With Making an Interest Only Mortgage Compensation Claim?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Financial Claims management companies. They have already helped thousands of people claim compensation for mis-sold financial products and they can do the same for you.

Choosing an independent claims management company means they won’t proceed with a claim unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these claim management companies who can help you make a compensation claim, then click on the below and answer the very simple questions.

Money Savings Advice Author Laura Broad

Laura Broad

Laura is a professional content writer and learning designer, passionate about empowering people through straightforward, jargon-free content. When she's not reading or writing about all things personal finance, you can find her in the gym, barbell in hand.

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