Homeowner debt consolidation loans

What does equity mean, in plain terms?

Equity is simply the part of your home's value that you actually own. If your property is worth, as an illustrative example, £250,000 and you still owe £150,000 on your mortgage, your equity is the £100,000 difference. Homeowner consolidation borrowing works by letting you draw on some of that equity to repay other debts, and in doing so it places a claim on part of the value you own.

How much of your equity should you use?

The more equity you have, the more you may be able to borrow, but you can never safely treat equity as free money. It is the cushion that protects you if house prices fall, and it is what you keep if you sell. Borrowing against it reduces that cushion and ties more of your home's value to debt. As a rule of thumb, the less of your equity you have to draw on, the more room you leave yourself if circumstances change.

What are your main options as a homeowner?

There are two broad routes, and both are forms of secured borrowing. They are not the only way to tackle debt, our alternatives to debt consolidation page covers approaches that leave your home out of it entirely.

Second-charge loans explained

A second-charge loan is the most common homeowner consolidation product. It is a secured debt consolidation loan that sits in second place behind your mortgage: if your home were ever sold to repay debts, the mortgage lender would be paid first and the second-charge lender afterwards. Because it is a separate loan, it leaves your existing mortgage untouched, which can matter if your mortgage has a good rate you do not want to lose, or an early repayment charge you would rather avoid.

The amount available depends on your equity, your income and your credit record. Terms can be long, which lowers the monthly payment but increases the total interest over time. As with all secured borrowing, the lower monthly figure is bought with the risk to your home.

Remortgaging or a further advance

The other route is to adjust your main mortgage. A remortgage replaces your current mortgage with a new, larger one and releases the difference; a further advance is additional borrowing from your existing lender on top of what you already have. Either way, the debt you consolidate becomes part of your mortgage and is repaid over the mortgage term.

Spreading debt over a long mortgage term can dramatically reduce monthly payments, but it is one of the clearest examples of a lower payment costing more overall: a sum that might have been cleared in a few years on a card or personal loan could take decades on a mortgage, accruing interest the whole time. There may also be early repayment charges on your current deal, and your mortgage rate may change. Comparing the interest rates and total cost carefully is essential before going this way.

Why is the risk different for homeowners?

For a homeowner, the stakes of consolidation are different. Unsecured debts such as credit cards are stressful, but falling behind on them does not directly threaten your home. Move that debt onto your property, whether through a second charge, a remortgage or a further advance, and a future setback could put the roof over your head at risk. The guide to secured versus unsecured debt consolidation explores this contrast in full.

It is also worth remembering that the decision is hard to undo. Once debt is secured on your home, unwinding it usually means repaying the loan or selling up, neither of which is quick. That is why taking free, impartial advice before you commit is time well spent rather than a delay.

Who it suits, and who it does not

Frequently asked questions