Most lenders will allow borrowers to increase their mortgage in order to pay off more expensive credit commitments. This is called consolidating existing borrowings, hence the term ‘consolidation mortgages’. Lenders will usually state a limit as to what percentage of the property’s value can be borrowed in total, when consolidating debts.
Debt consolidation can be applied for as part of a residential mortgage, a buy-to-let mortgage, or a commercial mortgage. The lender will normally need to see the advantage to be gained by consolidating credit commitments.
Here are few examples of debts that can be consolidated:
• Credit cards
• Personal loans
• Student Loans
Home improvement loans
• Secured loans
• Business loans
• Family loans
• Car finance (but be careful as some lenders will not allow this – see below)
The warning, in nearly all cases of consolidating debts into a mortgage, is that these debts are nearly always short-term borrowings and a mortgage is invariably taken over a longer term. Therefore, although a saving can be made in monthly outgoings, the effect of consolidating debts is that the total cost can be significantly more over the term of the mortgage, than it would have been if those debts had been repaid over the shorter term they were originally taken over.
Car finance can be difficult to qualify for consolidation as most people will change their car every 3 to 7 years, so the borrowing component for that vehicle could go on for many years into the future, if it were consolidated a mortgage.
If in doubt, ask your mortgage broker for advice.