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Shift debts to your mortgage?

Beware, it's not the easy saving it seems

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Updated October 2017

House and calculatorBefore you bump up your mortgage debt, check out all the options to raise the cash first.† Putting the debt on a low mortgage rate sounds sensible but could actually end up costing more, risking your home, or putting you in dreaded negative equity.

Whether the additional borrowing's to pay off debt or pay for a new kitchen or holiday, your mortgage shouldn't necessarily be the first port of call.†The problem isn't that it is wrong per se, in fact often it's a good move, but the issue is many people see it as a no-brainer solution.

So here are the key things anyone planning to shift their debts onto their mortgage needs to know, to help work out if it's right for them.

Three things to consider before borrowing more on your mortgage

Whatever the reason you need new finance, borrowing money on your mortgage is not always the cheapest way.

As this guide will explain, however easy it may seem to add debt to your mortgage, doing so will put your home at risk, is not even necessarily the cheapest, and is something that you should only ever do as a last resort.

Before you do it, consider these three key things:

Should you be borrowing money?

Debt should always be planned for and budgeted, so whether youíre borrowing the money to refurbish your kitchen, or to buy a new car, you should always consider how you are going to repay the money borrowed.

If you can plan and budget your savings to pay for your purchase, then this is always preferable. If you canít, then remember that there are many risks associated with raising debt on your mortgage Ė it will not be a cheap option!

A word of warning: if your intention for borrowing money on your mortgage is to pay off existing debt, don't do it. Instead read our Debt Problems guide for help on what to do if youíre in this situation.

Should you be using your mortgage to raise new finance?

There are four main risks associated with this; it will put your home at risk, it will likely be more expensive than short term finance, you must factor in the change to your mortgage repayments and it is something you should only ever do once, as a last resort.

  • Your home is at risk with a mortgage

    A mortgage is a secured debt, and while getting secured borrowing may sound better, itís the lender, NOT you, who gets the security. This is in the form of its right to take your home if you canít repay.

    This security is one of the reasons mortgage rates are much lower than other lending. The fact you have collateral - your home - means if you donít repay, the lenders' losses are limited, as it can take your assets.

    So given the choice, with everything else remaining equal, itís always better for you to have UNSECURED lending so if you canít repay, your house is safe (or at least it's much more difficult for them to take it).

    By getting a bigger mortgage to pay off your credit cards and loans, you are effectively converting unsecured debt into secured.

  • It's the interest COST not RATE that counts

    Which of the following costs less? Borrowing £10,000 on an 18% loan, or on a 5% mortgage?

    If youíre saying ďduh, donít ask the bleeding obviousĒ then beware, as you donít have enough information to answer correctly.

    The cost of a debt depends on both the rate AND how long you borrow for (the longer it's for, the costlier it is). It's crucial to factor how long it'll take you to repay when working out which is cheapest.

    After all, a mortgage is effectively just a loan, but over a much longer period - typically 25 years - while cards and loans are usually repaid much more quickly and this has a big impact. If you were to borrow...

    Borrow £10,000 at 5% over 25 years = £7,500 interest, Borrow £10,000 at 18% over 5 years = £5,200 interest

    So sometimes a higher interest rate repaid quicker can be the cheapest option. Try it for your own situation on this calculator for a rough idea.

    Borrowing Cost Calculator How much will my extra borrowing cost?

    An amount is required.

    The amount must be a valid number.

    The amount must be greater than 0.

    An interest rate is required.

    The interest rate must be a valid number.

    A period of time to borrow for is required.

    The period of time must be a valid number.

    The period of time must be greater than 0.

    Your Result

    To borrow £{{ vm.resultLoanAmount | number: 0 }}, it will cost £{{ vm.resultPerMonthAmount | number: 0 }}/month

    Over the life of the loan, this costs roughly £{{ vm.resultInterestAmount | number: 0 }} in interest


    It should be noted, if you factor inflation in (which means the value of money diminishes over time) paying more in the future doesnít hurt as much.

  • If you shift debts to a mortgage, keep up current repayments

    Please donít interpret this guide as saying 'never shift debts to a mortgage'. There are a number of circumstances where it will save you cash. The bigger message is to prevent people thinking it's a no-brainer.

    If you take the plunge, while it's tempting to see it as a way to reduce your monthly outgoings too, be very wary of that, as reducing your monthly payment could seriously increase the long-term cost.

    This is best explained by some simple numbers...

    The situation BEFORE shifting...
    Mortgage Credit Card
    Debt £100,000 £10,000
    Fixed Monthly Repayment £585 £295
    Interest Rate 5% 18%
    Time Until Repaid 25 years 4 years
    Total Interest Cost £75,500 £4,100

    So that's a total £80,000 interest cost. Now let's say we use the mortgage to clear the credit card debt.

    The 3 possible situations AFTER shifting...
    Scenario 1:
    Repayments set at level of old mortgage only
    Scenario 2:
    Repayments set at midpoint between scenarios 1 and 2
    Scenario 3:
    Repayments kept at total level of old mortgage & credit card
    Debt £110,000 £110,000 £110,000
    Monthly Repayment £585 £735 £885
    Interest Rate 5% 5% 5%
    Time Until Repaid 31 years 19.5 years 14.5 years
    Total Interest Cost £106,500 £62,000 £45,000

    You can see the difference between the two is huge. If you just moved the cards to your mortgage and kept the same mortgage repayment (scenario 1), you'd end up paying over £25,000 more interest than keeping them separate, because it would take you so much longer to repay the whole amount.

    Yet if you kept up the same total repayments (mortgage plus credit card added together) - scenario 3 you'd nearly HALVE your interest costs.

  • Surely that beats shifting it to a credit card?

    If you're looking at scenarios 2 or 3 in the above table and thinking "wow, amazing saving! Surely shifting the debt to a credit card wouldn't beat that?", hold fire. We need to compare like with like.

    The equivalent to this situation is you shift your debt to a cheaper credit card, then once you've cleared the card you add those extra repayments to your mortgage and start overpaying it anyway. The results of that would be similar (or often even better) than scenario 3.

  • Only ever do this once

    Only do it onceThis is less of a practical point and more a warning. Shifting debts onto your mortgage can be quite a psychologically easy thing to do. Many feel like the problem debts have simply disappeared as there's no card or loan company chasing.

    It therefore risks becoming a habitual pattern to clear cards with the mortgage, then start spending on them again, and clear again and again. In the past, many thought house price growth would cover the debts for them - some of those people are now in negative equity (ie, trapped as their mortgage is higher than their home's value).

    Putting your debt onto your mortgage is spending your house, keep doing it and you may have not a brick left.

    Martin once met a couple who'd inherited a house and then got a mortgage out to clear some of their credit cards. Once that habit started, they kept doing it until they ended up selling the place and coming out with nothing.

    So if you do shift debts onto your mortgage, think of it as a serious thing to do and a dead end for that type of borrowing. Once the cards are clear, it's time to consider cancelling them and cutting them up.

Of course, if you've a poor credit score this won't always work, and the rate you get may still be high (see the Problem Debt guide for more).

Once you know the cheapest unsecured rate you can get for your existing debts (which may well just be your current situation), it's time to compare that to the cost of switching debts to your mortgage.

Is it cheaper to find alternate finance or shift debt elsewhere?

As shifting to secured debt is only worthwhile if you save serious cash, this isnít simply a question of 'can I save money by moving my card and loan debts onto my mortgage?' Instead, you need to...

Work out if shifting debts to your mortgage is cheaper than shifting them to the cheapest new credit card or loan

After all, saving money without securing is better. So first check out the following routes, then compare the best option they give you against the cost of securing.

  • Balance transfer credit cards.

    Balance transferIf youíve existing credit card debts and a decent credit history, balance transfer deals let you shift debts to a new card at much cheaper rates. If you repay in a relatively short time (a couple of years) these will often vastly reduce the cost, undercutting even a mortgage.

    For full help and all the best buys see the Best Balance Transfer guide.

  • Do the credit card shuffle

    Even if youíre refused new credit, you may be able to use your existing debts more efficiently. There are a hidden range of existing customer balance transfer deals too. If you arenít up to your credit limit on all cards, you may be able to utilise these to radically cut costs. Full help in our Credit Card Shuffle point.

  • Shift existing loans.

    Cutting the cost of loans is much trickier, both as there are small penalties and because loan interest rates have increased over recent years. If your loan rate is very high and your credit score has improved, it may be possible, see the existing loan cost cutting guide for more (including a calculator).

  • Take out cheap personal loans

    If youíre looking for new finance rather than just cutting debt then consider taking out an unsecured personal loan. Rates are currently at the lowest weíve ever seen so for more information on this, including the best current rates for your needs, have a look at our Cheap Personal Loans guide

Of course, if you've a poor credit score this won't always work, and the rate you get may still be high (see the Problem Debt guide for more).

Once you know the cheapest unsecured rate you can get for your existing debts (which may well just be your current situation), it's time to compare that to the cost of switching debts to your mortgage.

Borrow more on mortgage

Decided to borrow more on your mortgage?

If you've got to this point and still decide to borrow more money on your mortgage, there are three main options - each has its own pros and cons. See which one might work best for you....

1. Further Advance

Getting your current mortgage lender to lend you more money is called a further advance.†It can be relatively quick and straightforward but there are no guarantees your lender will be willing.

How does it work?

The lender will usually:

  • Have a maximum LTV it will let you borrow up to (typically 80-85%)
  • Insist you have had your current mortgage for a minimum of 6 months
  • Have a minimum further advance size (typically £5,000)
  • Want to know what the money is for (and might ask for proof)
  • Require you to apply which involves doing another credit check, affordability assessment and potentially another valuation of your property
  • Require you to put the new borrowing on a separate mortgage rate which is likely to mean arrangement and/or booking fees need to be paid.

But there are things to watch out for. Donít assume your lender will let you add debt to your mortgage, and even if it does, you must consider the impact on your ability to remortgage in future (getting a new deal either for moving house or to cut costs - see remortgage guide).

One issue is your credit history. Even if it was good enough to get a mortgage initially, it may not be good enough now as lenders' criteria change. †If your circumstances have changed for the worse, for example your salary has fallen or you have more debt or outgoings now, this could also hurt your chances.

The other key mortgage metric is three little letters... LTV

LTV = Loan to value - The size of your borrowing compared to your homes current value

The lower the LTV, the better mortgage deal you are usually able to get.

Borrowers who got mortgages pre-credit-crunch may be surprised if they try to add any debts to it - lenders may refuse if your LTV is too high, or make you pay for a new house valuation (if the value has dropped, that unfortunately increases your LTV, as the loanís then a bigger proportion).

If your salary has dropped since you took out the mortgage, or your credit rating has taken a turn for the worse (eg, missed payments, or it wasn't particularly shiny to begin with), you may also struggle to convince a lender to extend your mortgage borrowing.

Factor in the impact on remortgaging too.

Even if the lender allows it, it could end up increasing the cost of your mortgage in future, which defeats the gain.

As a rough rule of thumb, mortgages get cheaper at each of the following barriers: 60%, 75%, 80% and 90% LTV. If adding debt to your mortgage pushes you above one of those thresholds, it could mean next time you want to remortgage, itíll be costlier. So, any savings on, say, £10,000 debt shifted to the mortgage may be outweighed by the extra cost on £100,000s of mortgage debt itself.

2. Remortgage

This is when you repay your existing mortgage by taking out a new mortgage on the same property with a different lender.†

WARNING! This is a drastic step to take if you are ditching a good product just to get the additional borrowing.† It rarely makes sense to pay an early repayment charge to leave the current mortgage in order to borrow more. You need to check your sums carefully to ensure this is the best move for you.

How does it work?

Using our cheap remortgage guide, you find the best remortgage deal for you and when you apply, you ask for the amount you need to pay your existing lender plus the additional you want to borrow.

The lender will usually:

  • Want to know what the money is for (the lender might want proof that's what youíre going to spend the money on and is likely to refuse the loan if the money is for funding a business or self-employed activity)
  • Charge mortgage fees (arrangement and/or booking fee)
  • Give you the valuation and legal work for free

Good for:†


  • Borrowing larger amounts
  • Paying the money back over a long period of time

Bad for:

  • Borrowers who are tied into a mortgage rate and would have to pay an early repayment charge to leave their current mortgage.† You need to be sure itís worth paying this.† Especially if youíre on a competitive rate that you couldnít improve on by remortgaging.
  • Those in a rush as a remortgage usually takes around 6-8 weeks to complete.

3. Secured Loan (aka 'second-charge mortgage')

Simply put, a secured loan or second-charge mortgage a loan only available to property owners (or mortgage holders), where the lender can forcibly sell your house to get its money back if you can't repay. The 'secured' bit means the lender gets 'security' - not you. You get the opposite, as if you have problems paying back, the lender can repossess your home.

For more information, see our Secured Loans guide.

Quick question

Is my home definitely safe if I take out unsecured borrowing?

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