Will Having a Loan Affect My Remortgage?

Many homeowners have at least one active loan at the point of remortgaging, especially if the loan was used for home improvements or consolidating debt. Although this can make remortgaging a bit more complex, it is still very much possible to remortgage with a loan.

In most cases, it’s less about whether lenders will allow it and more about how the loan will affect how much you can borrow, as well as the rate you’re offered. In this article, we’ll take a look at how lenders look at loans during a remortgage and how to approach the process to improve your chances of a favourable result.

Key Takeaways

• Having an existing personal loan or car finance does not stop you from remortgaging, but it can reduce how much you can borrow.
• Lenders assess loans as part of your affordability, not just your credit score. The higher your monthly repayments, the lower your borrowing capacity may be.
• Fully repaying or reducing a loan before applying can improve your remortgage options, but you should only do this if it makes financial sense.
• Taking out a new loan shortly before or during a remortgage application can cause delays, lower affordability, or trigger a lender re-check.
• A broker like WIS Mortgages can show which lenders are more flexible toward personal loans, car finance, and short-term borrowing.

How Lenders Assess Loans During a Remortgage

Lenders don’t just look at your mortgage balance during the remortgage process; they assess your full financial picture. That includes:

A £200 per month car finance agreement, for example, could reduce your maximum borrowing by tens of thousands of pounds. This is true even if your credit score is excellent.

Do Loans Always Reduce How Much You Can Borrow?

Although loans can reduce your borrowing power when remortgaging, it isn’t always the case. In reality, it depends on the lender’s affordability model. Some lenders apply very strict debt-to-income calculations, while others are more flexible. Let’s look at a few examples below:

By working with a professional mortgage advisor, you can determine how your loan might affect your remortgage. Our team at WIS Mortgages can help you compare lenders to understand how your loan may impact your remortgage options. Or, get an idea about remortgaging costs with our remortgage savings calculator.

Will Paying Off the Loan Before Remortgaging Help?

Paying off the loan before remortgaging can be useful in some situations, but it isn’t always beneficial. If you have a large loan with high repayments, then it can impress lenders if you pay this off before remortgaging. However, it is sometimes better to keep the loan and secure a lower rate. For example:

• Paying off a £7,000 loan with 18 months left might help improve affordability more than the cash is worth elsewhere.
• However, repaying a £1,000 loan with 4 months left will likely have a negligible impact.

A broker can help you explore both scenarios to assess potential cost differences, based on your circumstances.

Will a Loan Affect My Mortgage Rate?

A loan doesn’t directly increase your interest rate, but it may place you in a lower lending bracket, reducing the deals available to you. For example:

• With no loan, you may be eligible for lower interest rates typically available at 60% loan-to-value ratio.
• With a loan that reduces borrowing power, you may only be able to remortgage at 70% LTV, so rates increase.

When Does a Loan Become a Problem?

A loan only becomes a real obstacle under certain circumstances. That means you don’t always have to act if you have a loan and want to remortgage. Loans can be problematic during the remortgage process when:

• It is a new loan
• The loan was taken out after the mortgage was issued
• The loan pushes your affordability over the lender’s threshold
• You miss any payments on your loan
• The total unsecured debt is high

It is for these reasons that it is wise not to take out new credit during a remortgage application, unless discussed first.

Case Study: Leveraging a Loan During a Remortgage

A lot of our work at WIS Mortgages is about finding intelligent mortgage solutions for our clients’ unique needs. In one case, we were helping a homeowner with an existing unsecured loan that was used to fund a property extension.

Unfortunately, this loan reduced our clients’ affordability. This meant he did not qualify for the remortgage rate they were hoping for, and a deal that would cost an additional £120 per month.

Our solution to this challenge was to consolidate the loan into the remortgage. We then managed to reduce the interest on the loan from 15.9 % down to 4 %. Finally, we advised our client to continue paying the extra £300 per month that they were paying on the loan, as an overpayment on the mortgage.

In this case, the client was able to reduce total interest and shorten their mortgage term by maintaining higher repayments. However, this outcome may not apply in all situations. By keeping up with the higher monthly payment, they should clear the mortgage term three years earlier. This is a great example of how loans can block access to competitive mortgage rates and how restructuring them through remortgage can turn a problem into a long-term saving.

Frequently Asked Questions

Q. Can I remortgage if I have a personal loan?

A. Yes, you can remortgage your property if you currently have a personal loan. Lenders will simply include the monthly payment in affordability checks. With that said, it is important to know how the personal loan might affect how much you can borrow.

Q. Should I pay off my loan first?

A. You can choose to pay off your loan before remortgaging, but whether it helps or not will depend on your circumstances. It could be useful to pay off the loan if the debt reduction meaningfully increases borrowing power or improves rate options.

Q. Can I take out a loan after I remortgage?

A. Yes, you can take out a loan after you have remortgaged. However, it is wise to avoid doing so until after completion day to avoid triggering reassessment.

Q. Will a loan affect my credit score for remortgaging?

A. In most cases, the loan shouldn’t impact your credit score if you keep up with repayments. It might, however, affect affordability on your remortgage. If you are unsure about this, it is a good idea to speak with a professional mortgage advisor.

Speak to WIS Mortgages to Get the Most Out of Remortgaging

Having a loan doesn’t prevent you from remortgaging, but it can change what you qualify for, especially if the loan repayments are high or recently taken out. The key is knowing how lenders treat loans, whether repaying early helps, and which lender will give you the best outcome based on your current financial setup.

If you’re planning to remortgage and already have a loan or car finance, WIS Mortgages can help guide you through the process effectively. Get in touch with us today and explore your borrowing options based on your current circumstances, with or without your existing loan.

Important FCA Warning

As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments. Written by the mortgage experts at WIS Mortgages, specialists in complex income and affordability assessments.

WIS Mortgages is a trading name of WIS Contractor Mortgages Limited, which is authorised and regulated by the Financial Conduct Authority. FCA number: 824411.

This article is for information purposes and does not constitute personal mortgage advice. You should speak to a qualified mortgage adviser to assess your individual circumstances.