Question
We would like to remortgage our house and change it from an interest only mortgage to a repayment mortgage. It is worth £170,000 and the outstanding balance is £95,000.
We would like to borrow an additional £50,000 to pay off our loan and credit cards. Can you help us get a mortgage?
Darren’s answer
In short, yes, you can switch from an interest-only mortgage to a repayment-on-remortgage.
Consider some factors that will affect the conversion from interest-only to repayment and the amount you can free up for debt consolidation:
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- Lenders will vary regarding maximum loan-to-value (LTVs), but based on the above, you will sit at the 85% mark, which will be in line with most lenders.
- The change in term that guarantees mortgage repayment will be determined in line with your affordability
- This will include an assessment of your household income(s), type of employment (worker, self-employed, contract), regular obligations (loans, childcare, cards, maintenance), and household costs (stress testing with higher interest rates)
- If affordability is tight, options may include extending the mortgage term
Your plan to pay off your loans and credit cards by adding £50,000 to your mortgage is known as Debt consolidation. This will require some additional checks which the broker can help with. These tend to include:
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- Details of the debts being settled
- Proof of balances to be paid upon completion
- Credit history (missed payments, defaults, arrangements)
- Your income and expenses, including living costs
The advantage of doing this is that your total monthly payments will be lower and you will have a single payment. This will likely be at a lower interest rate than your current loans or credit cards.
Please note that depending on the term of your loans and credit cards, you will likely pay more in interest because the debt extends over the term of your mortgage.
It’s a good idea to talk to a broker who can evaluate your options and make a personalized recommendation specific to your circumstances.
