Published 2 January 2025 · Last reviewed 2 January 2025
A guide to Interest Only Debt Consolidation Remortgage
Debt consolidation is the process used to describe combining debts. Interest only is where you are only paying the interest on the amount you’ve borrowed but are not reducing the debt. Debt consolidation remortgaging with interest only can produce a significant reduction in your monthly bills. It needs a well thought out long time strategy to repay the debt eventually. For clarity, a remortgage is a loan secured against your home, so if you do not keep up with repayments, you could be repossessed. The Annual Percentage Rate (APRs) give you an idea of how much it could cost each year, in interest, including any standard fees, to borrow money. The APR is shown as a percentage.
In this article, I explore the interest rates available on interest-only debt consolidation for remortgaging your home. Information is provided on unsecured debts, but this is not an area I advise on, so you should seek suitable professional advice and consider comparison sites.
Bear in mind interest rates fluctuate depending on the market and economic conditions at the time. Your own circumstances and eligibility will need to be discussed individually.
The cost of unsecured borrowing
Unsecured loans typically start around the 6% APR interest mark (as at 29/12/2024) and the average is around the 12% APR mark. Loans can of course be high M&S Bank currently caps at 22.9% APR (as at 29/12/2024); Nationwide currently caps 29.9%, Novuna Personal Finance for a small loan is 36.4%, and Everyday loans online calculator shows APR representative of 99.9%.
Credit cards there are normally offers out there with zero interest rates for like-for-like balance transfers. Inevitably there will be a
n admin fee to pay, and you should be very mindful of the rate after the benefit period as you may not be in the position to switch again as it we be based on your new circumstances at the time. Moving zero interest rates into a remortgage is normally ill-advised.
Hire purchases (HP) and Personal Contract Purchases (PCP) can attract lower rates than unsecured loans, maybe as low as 3% for applicants with excellent credit scores and deposits. The Lloyds and Halifax sites (as at 29/12/2024) currently should HP at 5.9% APR and PCP 7.9%.
Storecards are effectively credit cards that are for certain retailers such as John Lewis, Waitrose and Argos. The John Lewis website shows rates starting from 28.9% APR (as of 29/12/2024).
Klarna has pretty much taken the store card market in recent times. Next, monthly repayment may not cost, but the conversion to a payment plan over 3, 6 or 12 months attracts a typical APR representative of 27.9% on their website (as of 29/12/2024).
Payday loans. These short-term loans and typically for small amounts of money but rates can be eye watering. Wageday Advance website shows rates from 12.9% APR to 1721% APR. The Moneyboat website (as at 29/12/2024) says the interest charged on their loans is 0.79% per day (maximum APR 1,267.9%) and is only calculated on the outstanding balance. As a point to note, many Remortgage Lenders do NOT like payday loans in the last 1 to 2 years as they see this as sign of financial stress.
Can an Interest only remortgage save me money?
To recap you will only be paying interest on the amount borrowed on a monthly basis. At the end of the mortgage term, which could be between 1 to 40 years, depending on your age and Remortgage Lender selected), you would need to repay the amount borrowed initially. So if at the start of the remortgage you were lent £150,000, at the end of the term in, say, 25 years, you would need to pay the Remortgage Lender £150,000.
Here are examples of current interest only remortgage rates based on there being 25% equity left in your property after the mortgages goes through. The APR is calculated on a mortgage size £250,000.
As at 29/12/24 source Twenty7tec.
Conclusion
As you see from the interest rates/APRs in this article there is certainly potential to reduce monthly outgoings by remortgaging depending on your circumstances and commitments. However, you need to be mindful that although the remortgage interest rates may be lower it is likely that the mortgage will run for longer and borrowing over a longer period can add to the overall debt.
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Think carefully before securing other debts against your home. Some Buy to let and commercial mortgages are not regulated by the Financial Conduct Authority. You are consolidating your existing financial commitments, you should therefore be aware that whilst this may mean you will make short term savings, over the long term, you may end up paying more. This is because you may be extending the period of the loan. You are also transferring previously unsecured debts to a mortgage which is secured on your home. The reason you want to consolidate your existing debts is to reduce your monthly outgoings.