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Can I add debt to my mortgage?

debt

If you have a lot of outstanding debt, you may have looked at different ways of paying it off. One way could be to refinance your mortgage in order to consolidate your debt into just one payment. It may sound like a simple solution, however there is a lot to consider before making that move.

Remortgaging isn’t always a sensible option for everyone so it’s worth considering the pros and cons.

Don’t be fooled by interest rates

Remortgaging and rolling your credit card debt into your mortgage may seem like a no-brainer when it comes to the interest rate that you currently pay. With most credit card interest rates ranging between 16-27% APR and the average mortgage rate between 1-5% [Money Advice Service, 2018] why wouldn’t you want to move your debt onto a lower rate?

However it isn’t quite that simple. Moving your debt onto your mortgage, even if its on a lower interest rate, could ultimately cost you more.

Whilst it may sound beneficial to have one simple payment going out each month, it’s always wise to look past those temptingly low interest rates and look at the long term implications of debt. You may end up paying more because you are paying your debt back over a much longer period of time.

Secured vs unsecured

By adding credit card debt onto your mortgage, you are switching from unsecured debt to secured debt, which could be quite a risky move.

Credit cards are known as unsecured debt – whilst a lender can take action to ensure that they recover their money, they can’t just seize your assets. However, as your mortgage is a secured loan, if you fail to make your repayments, your lender is within rights to repossess your property.

Additional costs

Whilst remortgaging could actually be a way of saving you money, you must take into consideration any extra costs that refinancing your property may bring. You could face mortgage arrangement fees as well as valuation and legal fees, so you’ll need to work out whether remortgaging just to consolidate your debt is actually worth those extra costs.

What other options do I have for paying off my debt?

You may wish to apply for a 0% balance transfer card. This could give you 2 to 3 years of breathing space to pay off your debt without incurring any extra interest. These cards can be very useful if you think you can pay off your debt before the 0% interest period ends – if not, you may end up paying more interest than you were previously.
Not everyone is eligible for a 0% balance transfer card, however it may be worth seeking out a credit card with a lower APR which will go a little way to clearing that debt quicker.

Seek financial advice

Whilst remortgaging to consolidate debt may work for some people, in most circumstances it may just be a quick fix.
If you are already having issues with debt, it may be worth addressing these problems before adding more debt into the mix, particularly when it involves more risk involving your property.

If considering a remortgage, for whatever reason, a mortgage adviser will be able to help you find the right deal for you.

Speak to SoSmart Money about the best mortgage for you today

The above post does not constitute advice – financial, legal or otherwise. The information within this article is the author’s own opinion and do not necessarily reflect the views of SO Media or So Smart Money.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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