Consolidating means using one new loan to pay off others, such as credit cards and personal loans. A lower monthly payment is usually the reason people consider it. This guide covers why the total cost can still rise, and what to ask before you decide.
Two ways to consolidate
It can be done by remortgaging, or with a homeowner loan alongside your mortgage. With a remortgage, the other borrowing is added to your mortgage. With a homeowner loan, your mortgage stays as it is and a separate loan pays off the rest, so you can combine your other borrowing into one monthly payment while your mortgage payment carries on as before.
Why the monthly payment can fall
Credit cards and personal loans are often repaid over a few years. Borrowing secured on your home is usually repaid over a much longer term, often at a lower rate. Spreading the same amount over more years is the main reason the monthly payment can fall.
Why the total can rise
Spreading borrowing over more years means paying interest for more years, and that can outweigh a lower rate. Fees for arranging the new borrowing are sometimes added to the loan, and interest is then charged on them too.
Securing unsecured borrowing against your home changes the risk.
What to ask a broker
For each option the broker suggests, ask for:
- the monthly payment now, and after consolidating
- the total amount repayable over the full term
- any fees, and whether they are added to the loan
- the term, and whether a shorter one is possible
- any early repayment charge on your current mortgage or loans
- whether paying off some borrowing, but not all of it, would cost less in total
A broker from our panel can show you both figures, the monthly payment and the total cost, before you decide.
You don't have to consolidate
You do not have to consolidate your debts to remortgage. Debt consolidation may not be right for you. Your mortgage adviser will discuss your options with you to help you understand what suits your circumstances.
Questions people ask
Will consolidating lower my monthly payment?
It may. Whether it does, and what it costs in total, depends on the rates, the fees and the term.