Simple Guide to Remortgaging With Credit Card Debt
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
If you’re concerned about how credit card debt might impact your chances of remortgaging, you’ve come to the right place. Every month, over 170,000 people visit our site seeking advice on similar issues.
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
Dealing with debt and mortgage arrears can be tough. But you’re not alone. In fact, 1.6 million households are facing substantial payment hikes after fixed-rate mortgage deals end in 2024.1
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.
It can be completed with the same lender under different terms and different products involved, or it could be done with a different lender.
You may be looking for a remortgage because you may have found a new mortgage deal that provides a much better interest rate than your old mortgage.
It could also be because the new mortgage deal you’re looking towards has reduced payments compared to your current mortgage.
This could free up some money for other living costs or payment towards other debts such as credit cards.
Mortgage 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.
| Debt Strategy | How It Can Help with Mortgage Arrears |
|---|---|
| One-Off Payment | Pay a lump sum, possibly from an inheritance or a bonus, to significantly reduce your overall mortgage balance. |
| Remortgaging | Switching to a different mortgage product or provider could result in lower monthly payments. |
| Hardship Schemes | Lenders often have dedicated hardship teams that assess your situation and offer individualised solutions, such as: -Payment Holidays -Mortgage Term Extension -Interest-Only Payments -Capitalising Arrears -Flexible Payment Arrangements -Fee Waivers or Reductions |
| Government Schemes | -Support for Mortgage Interest (SMI) -Shared Ownership Schemes -Equity Release -Local Council Support |
| Debt Solutions | Formal debt solutions for managing mortgage debt include Individual Voluntary Arrangements (IVAs), Debt Relief Orders (DROs), Bankruptcy, and Administration Orders. Each debt solution has specific eligibility criteria and significant implications for assets and credit ratings. |
| Debt Advice Services | Seek free advice from debt charities who can help you assess your situation, suggest appropriate solutions and negotiate with lenders. |
| Sell or Rent Back | If other options aren’t viable, consider selling your property and moving to a more affordable home or renting it back. |
How Much Equity Do You Have in Your Property?
You must also be wary of how much equity you have in your property.
Even if you have enough equity to get a remortgage, consider other options before opting for it. If, for example, your current mortgage is around 85% of the value of your home, then a remortgage could prove 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.
All these guidelines and regulations are put in place to protect you from unfair practices and ensure you’re only paying what you can afford.
Credit Card Debt and Remortgaging
If you have credit card debt, this will hurt your chances of securing a remortgage.
However, lenders will be more favourable towards you if you can effectively explain why you accumulated so much debt and the steps you’re taking to repay it.
Lenders might approve your application if you can pinpoint a significant event in your past that caused you to accumulate so much debt.
How a debt solution could help
Some debt solutions can:
- Stop nasty calls from creditors
- Freeze interest and charges
- Reduce your monthly payments
A few debt solutions can even result in writing off some of your debt.
Here’s an example:
Situation
| Monthly income | £2,504 |
| Monthly expenses | £2,345 |
| Total debt | £32,049 |
Monthly debt repayments
| Before | £587 |
| After | £158 |
£429 reduction in monthly payments
If you want to learn what debt solutions are available to you, click the button below to get started.
Will My Credit Card Debt Affect How Much I Can Borrow?
When a lender makes affordability assessment calculations, they will assume that you will pay 3-5% of your monthly income towards your credit card debt.
This factors in the amount you’d be able to afford towards your mortgage payments each month.
If your debt is high, then your remortgage is usually smaller.
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 My Credit Score Affect My Chances of Getting a Remortgage?
If you already have a mortgage and card debt, you will likely have a poor credit score. This will negatively impact the chances of your mortgage application being approved.
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 for a Remortgage
Debt on your credit card reflects poorly on you as a borrower in your application.
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.
Taking time to reduce your credit card debt before applying can positively impact your credit score. In turn, your chances of getting approved will increase.
Thousands have already tackled their debt
Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.
Natasha
I’d recommend this firm to anyone struggling with debt – my mind has been put to rest, all is getting sorted.
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How Can I Reduce Credit Card Debt Before Applying for a Remortgage?
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 ‘full and final’ settlement offer would involve you paying this lump sum to your creditor and then writing off the remaining debt you may have.
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.
You can effectively reduce the amount of money you owe using this method. However, be aware of any balance transfer fees involved.
Consider All Options Before Deciding
Getting a mortgage with credit card debt is difficult enough, but remortgage with debt is even more challenging.
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
