Secured Loans vs Remortgages

Secured loans are a popular way for homeowners to seek additional finance, but they aren’t necessarily the right choice for everyone. In some cases, remortgaging could be a better option.

This guide will take a closer look at secured loans and outline all the reasons why they’re a solid alternative to remortgaging so you can make a more informed decision as to which could be the right route for you to take.

Can a secured loan be an alternative to remortgaging?

Yes. Both remortgages and secured loans can help you borrow additional money against a property you own and have a mortgage on.

Which option you should choose depends on your needs, circumstances and the interest rate you’d qualify for on both product types.

When you remortgage, you switch your entire mortgage balance to a new deal, and if you’re seeking to raise finance you’ll borrow some additional funds on top of that (provided you’ve got enough equity in your home).

A secured loan offers an alternative way to benefit from the equity in your property without needing to remortgage – you’re simply adding an additional loan to your overall property debt.

There are brokers who specialise in both of these types of finance and they can compare and contrast them for you to help you make an informed decision about which to choose

How a secured loan works

A secured loan is a type of borrowing that’s secured onto an asset, usually property, with your home being used as collateral.

It can be known as several different things, including:

• Homeowner loan
• Second charge mortgage
• Second mortgage
• Further charge

… but they all mean the same thing.

Essentially, the lender puts a “second charge” onto your property, the first charge being the original mortgage (though you can also put on a third, fourth, fifth charge…).

The lender is then able to repossess your home if you default on your payments, but they’ll need to get in line – the original mortgage lender takes priority, which means the second charge lender risks being unpaid if there aren’t any funds left over after the sale.

For this reason, secured loans often come with higher interest rates than typical remortgage deals, to account for the additional risk the lender is taking on.

Benefits of secured loans Vs remortgaging

Both these options are tied heavily to your loan-to-value (LTV), which dictates how much you can borrow and the rate you’ll be offered. Yet there’s a lot more to think about besides.

Here’s a closer look at the pros and cons of each:

Secured Loans

Advantages:

• There’s no need to go through the hassle of a full remortgage, but you can still use your property to borrow the funds you need.
• You can borrow substantial amounts through a homeowner loan, making them ideal for home improvements or debt consolidation
• Usually quicker to arrange than a remortgage
• You’re not tied to your original mortgage lender, which means you may be able to access better rates.
• Credit scoring and affordability criteria are often more flexible.
• Smaller secured loans taken out over a short period of time can work out cheaper.

Disadvantages:

• You’ll still have fees to pay, though for smaller borrowing amounts you may not need to worry about full valuations.
• Interest rates are typically higher.
• It could end up being more expensive to have a second loan at a higher rate, though this will depend on the amount you borrow, your loan term and the rate you’re paying.

Remortgaging

Advantages:

• If you’ve come to the end of your initial mortgage term and have reduced your LTV substantially, you could benefit from a much lower rate.
• You’ll be able to use the funds raised through remortgaging for a range of purposes, from buying out a partner through to purchasing another property
• By remortgaging you’ve only got one credit agreement to think about, whereas if you were to keep your current mortgage deal and get a secured loan on top, you’d have two monthly repayments to keep track of at two different interest rates

Disadvantages:

• There’ll be various fees to pay, including valuation fees, legal fees and administration costs, though some of these can be waived if you’re sticking with your original lender.
• The success of your application will rely heavily on your income and credit score. If your circumstances have changed since you took out the original mortgage loan, you may find it difficult to remortgage.
• By adding additional funds to your mortgage balance, you may end up paying more in interest over the term, even if it’s at a lower rate.

How a broker can help

The product that will be right for you depends heavily on your personal circumstances, and it’s vital to get it right the first time so you don’t risk losing out financially.

This is why it’s always best to speak to an expert advisor – they’ll talk through your options to determine whether a secured loan or remortgage would be right for you.

Crucially, they’ll also be able to source the ideal product to suit, and considering not all mainstream lenders operate in this space, having the experts on your side could prove invaluable.

There are brokers in our network who are experts in secured loans and remortgages, and they will have the knowledge and experience with both product types to help you make the right choice.

Make an enquiry and we’ll match you with your ideal broker for a free, no-obligation chat about your requirements today.

When would a secured loan be a better option?

There are a few situations where borrowers may be better off considering a secured loan instead of a remortgage.

These include:

• When remortgaging would mean you’d have to switch to a higher interest rate. If you’ve got a low-rate mortgage and switching would mean you’d lose that, you may want to keep your original deal and accept slightly higher repayments from a secured loan.
• When you’re still locked into an initial rate. If you’re still locked into a fixed rate term, you’ll usually need to pay hefty exit fees to switch. In this case, taking out a separate secured loan would likely be cheaper, though make sure to do your sums (or speak to a mortgage broker for advice).
• If you need the money quickly. In some cases the money from a secured loan can be released the same day, rather than the weeks it would take to go through the process of remortgaging.
• If you’ve got “exceptional circumstances” that would make it difficult to remortgage. If you’re self-employed, your credit rating has taken a dip or you’ve suffered from CCJs or bankruptcy, you may be better off with a secured loan, with criteria often more flexible.
• If you’re mortgage-free. If you’ve already paid off your mortgage but want to raise additional finance by using the equity in your home, a secured loan may be the only option – most lenders won’t allow you to capital-raise on a mortgage-free property, but there are some specialist lenders who can help with this

Does a secured loan affect remortgaging in the future?

While it’s possible to remortgage if you’ve still got a secured loan, it could have an impact on your agreement.

You typically have two options:

1. You could raise additional funds by remortgaging to pay off the homeowner loan, though this will add more to your mortgage balance and, as discussed, could work out more expensive over the term.
2. You could keep the secured loan and new remortgage deal entirely separate, though not all lenders will agree to this. Bear in mind as well that any secured loan repayments will be factored into your mortgage affordability calculations, so it’ll have an effect there too.

Get advice from a secured loan expert

There’s a lot to think about when it comes to secured loans vs. remortgages and it’s important to weigh up the benefits of each, but it isn’t always easy to do it alone, and nor is it simple to find the lenders to suit – which is where we can help.

Using our unique broker-matching service we can match you with a mortgage broker who’s experienced in this sector and will be able to work with you to decide which option would best suit your needs.

It’s easy to arrange, too; just tell us a few details and we’ll scour our network of advisors to put you in touch with the broker who’s perfectly placed to help. Call us on 0808 189 0463 or make an enquiry to get started.