Remortgaging with credit card debt: options and risks

Credit card debt can affect a lender’s affordability assessment when you remortgage. This guide explains the main checks and risks.

In this easy-to-understand guide, we’ll cover:

•  The basics of remortgaging
•  How your credit card debt might affect remortgaging
•  Steps to apply for a remortgage
•  Extra costs you should know about
•  Ways to reduce your debt before applying for a remortgage

If an existing deal is ending, compare the new payments and fees with your current borrowing and budget. Old forecasts do not establish the options available today.

Don’t worry, we’re here to guide you through the process and help you make the best decisions for your situation.

What is a Remortgage? 

A remortgage involves replacing a current mortgage with a different one.

A remortgage usually replaces your mortgage with a new lender; changing deals with the same lender is often called a product transfer. Further borrowing and checks depend on the arrangement. Compare the total cost, not just the rate or monthly payment.

Debt Solutions

If you’re considering remortgaging, it’s also worth exploring other debt strategies that can help with mortgage arrears.

I’ve put together this quick table that provides an overview of the available solutions.

How Much Equity Do You Have in Your Property?

You must also be wary of how much equity you have in your property.

Even with sufficient equity, compare alternatives and the full remortgage cost. Loan-to-value affects the options, but 85% does not by itself establish that a remortgage will be extremely costly.

Most mortgage lenders registered in England are authorised and regulated by the Financial Conduct Authority (FCA), which means they abide by strict guidelines. 

If you think a mortgage provider is trying to take advantage of you, you can report them to the FCA. 

Regulation provides safeguards, but it does not guarantee that borrowing will remain affordable in every circumstance. Check the firm’s permissions and consider how changes in income or rates could affect you.

Will It Hurt My Chances of Securing One?

Credit card balances can reduce affordability, but having card debt does not automatically prevent a remortgage.

Each lender sets eligibility and affordability requirements. There is no universal UK credit-score threshold or guarantee of approval; income, commitments, credit history and any proposed security all matter.

An explanation for past problems may form part of an assessment, but it does not guarantee approval or replace evidence of affordability.

Will It Affect How Much I Can Borrow? 

Lenders include credit card commitments in their affordability assessment using their own methods. There is no universal rule that assumes repayments of 3–5% of your monthly income.

This factors in the amount you’d be able to afford towards your mortgage payments each month. 

Higher existing commitments may reduce the amount a lender is willing to offer.

The amount of money you can borrow could be much higher if you’re applying for a remortgage with another person, such as your spouse.

However, if your spouse also has credit card debt, this will be factored into the lender’s affordability assessment calculations. 

You may need to consider a guarantor mortgage if your credit is very low or you have a low income. You can use my free guarantor mortgage calculator to look at your finances.

This is a guidance tool only and not an assessment. For an accurate mortgage assessment, consult an online mortgage broker. Do not rely solely on this calculator’s results.

Will It Have A Negative Impact on My Application? 

Having a mortgage and credit card debt does not by itself mean you have a poor credit score. Payment history, balances, utilisation and other information matter.

You can check your credit score on Experian.

That being said, if you’ve been making regular payments towards your old mortgage loan and your monthly minimum payments towards your credit cards, your credit score may not be in such bad shape.

If you have defaulted on your mortgage or if you’ve been missing payments towards your credit card debt, you have a lower chance of getting approved.

Always ensure you’re making regular payments towards all your debts in the months leading up to your application for a remortgage. 

» TAKE ACTION NOW: Fill out the short debt form

Reduce Your Debt Before Applying

A lender assesses the balance and payment commitments alongside the rest of your finances; card borrowing is not inherently evidence of irresponsible behaviour.

So, if you’re thinking of getting a remortgage, spend a few months reducing the debt on your credit cards before actually applying for one. 

Reducing balances may improve affordability and credit utilisation, but approval and a score increase are not guaranteed. Do not miss essential payments or exhaust needed savings to chase a score.

Take the first step towards tackling your debt

Every day, our partner, The Debt Advice Service, helps people understand their options for dealing with debt. Their debt advice is free, with no obligation to proceed.

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Natasha

Very helpful and informative thank you

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For free, impartial help and access to not-for-profit debt advice, visit MoneyHelper.

How Can I Reduce It? 

There are several options you can pursue to reduce your credit card debt.

Ask for a ‘Full and Final’ Settlement Offer

If you have a large lump sum of money that isn’t quite as large as the debt you owe but is still close, then you might be able to get a ‘full and final’ settlement offer with your credit card company. 

A creditor may agree in writing to accept a smaller amount in full and final settlement. It can be recorded as partially settled and may affect later mortgage applications; obtain free debt advice before using this as a remortgage strategy.

Balance Transfer the Debt

You can also opt to balance transfer the debt you have on your credit card onto another card, which may have a lower interest rate.

A balance transfer moves debt; it does not itself reduce the balance. A lower promotional rate may reduce interest, but fees, affordability and the rate after the offer ends all matter.

Consider All Options Before Deciding

Compare the total amount repayable, interest, all fees, the term and early-repayment charges. A lower monthly payment can mean a longer term and a higher total cost. Securing previously unsecured debt against your home puts the property at risk if you cannot keep up repayments.

It is a good idea to reduce your credit card debt and consider all your options. Debt charities like Step Change can offer free advice if you owe money.

They can explain the advantages and disadvantages of different types of debt solutions to help you get out of debt.

References

1. Money and Mental Health – Mortgage holders with mental health problems statistics