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Secured loan or Remortgage
Is secured loan better then a remortgage?
Re financing or raising finance secured on property will usually raise certain questions about which would be better, a secured loan or remortgage - In this article we hope to give you an insight as to whether a secured loan or a remortgage is best suited for your needs.
There are some distinct differences between secured loans (often called second charge) and remortgage's and which will be best suited to you will depend on your individual circumstances. Before we look at the differences lets look at the similarities between the two.
What is similar between a secured loan and remortgage?
The obvious similarity between a secured loan and remortgage is that they are both secured on property, usually your home which is the largest investment most of us will ever make. With that in mind it is important to know the difference between the two so you can make an informed decision as to what would best for you.
Both secured loan and remortgage application are similar in how the lender will determine if they will complete on any applications. They both require you to earn enough money to repay the loans and they will both require enough equity in the property to fit in with the lenders criteria. Adverse credit will also determine if you would be eligible, generally speaking the worse the adverse credit the lower the loan to value they will allow which will mean you need more equity in the property.
Secured loan vs Remortgage
There are many attributes of a secured loan that benefit the borrower over a remortgage. One of the main reasons people will look at a secured loan rather than a remortgage is that a secured loan will not need the existing mortgage to be repaid - if your existing mortgage is still in a special deal period such as a fixed or discounted rate it may still have redemption penalties on it and a remortgage would mean the redemption penalties would need to be paid. As a secured loan does not require you to repay your existing mortgage you would not be subject to any redemption penalties from your current lender.
There are also no legal fees attached to a secured loan and they will normally complete within 2 to 4 weeks which means the borrower should benefit from the funds quicker. A secured loan will sit behind your 1st mortgage, what that means is the secured loan lender will need permission from your first mortgage company in order for a second charge to complete - this is why they are often referred to as second mortgages or charges. In legal terms this means the 1st mortgage company will be first in line should the property be sold which is reflected by the (normally) slightly higher interest rates of a second charge. A second charge will also allow a lower amount to be borrowed - usually starting around 5 to 7 thousand pounds.
Remortgage or Secured Loan?
One of the main downside to a secured loan would be that the payments run along side the mortgage and are not normally wrapped up within the same payment. Obviously raising funds via a remortgage will mean there are no additional secured monthly payments other than the mortgage. This will generally mean a secured loan will cost more on a monthly basis after the normal mortgage is factored in as opposed to raising the funds by remortgage only.
Remortgage's will normally have lower interest rates than secured loans and although every situation is different, in general terms if you are raising at least 15% or 20% of your existing mortgage balance then a re-mortgage would usually work out cheaper due to the higher interest rates associated with secured loans.
A remortgage will also mean you have one single monthly payment instead of one monthly mortgage payment and a secured loan payment which is normally easier to manage and maintain. A re-mortgage will also mean that the new lender will not have to ask permission from your existing lender as they will be repaid once the application completes.
Every situation is different and no two circumstances are the same which is why we would recommend speaking to a qualified advisor to help you decide what would be best suited to your needs.
