If you own your own home and need to borrow additional cash, there are several different options available to you. Two of the most popular ways of borrowing against the equity in your home are a secured loan and a remortgage.
A remortgage involves switching your home loan to a new lender without moving house. As part of the remortgage process you can normally borrow additional money depending on the equity in your home and your income and outgoings. Once your remortgage is completed you have one loan, one lender and one monthly payment.
A secured loan is an additional loan that you take secured against your property. It is normally separate from your main mortgage and is often with a different lender. You will generally find that you have two separate loans with two different lenders, resulting in two separate monthly repayments.
Secured loans can sometimes be more beneficial than a remortgage. For example, if you have an excellent deal on your current mortgage that you don’t want to lose, taking out a secured loan can help you. In addition, secured loans are sometimes easier to obtain if you are self-employed or if you have a less than perfect credit history.
However, remortgages are often a better solution than a secured loan for several reasons. Firstly, remortgage rates are typically lower than the interest rates available on secured loans. A remortgage lender takes a ‘first charge’ against your home meaning that they have the first demand on any proceeds should you fail to keep up your repayments. As a secured lender typically takes a ‘second charge’ there is a higher likelihood that they won’t recoup their money, meaning the lending is riskier.
The advantage of lower remortgage rates also means that you can secure a great deal on both your main mortgage and the additional sum you are borrowing. You may be able to benefit from a fixed rate or a discounted/tracker deal on all your borrowing. As a secured loan is separate to your main mortgage, the interest rates will generally be different.
In addition, the fees for remortgaging can often be lower than for taking out a secured loan. Many lenders will meet some or all of the costs incurred in a remortgage – such as valuation or legal fees – whilst you may have to pay arrangement or survey fees if you want to take out a secured loan.
Taking out a remortgage rather than a secured loan can also keep your finances more straightforward and easier to manage. If you take out a secured loan you will find that you have two different lenders and two separate direct debit payments. You will have to get in touch with both lenders to change any details and it can mean your finances are more complicated.
A remortgage leaves you with one lender, one home loan and one payment. You don’t have to worry about multiple creditors or making more than one payment from your bank account every month.
If you are a homeowner and you are looking to borrow additional funds, secured loans and remortgages are two of the most popular options. However, before you sign up for a deal it is important that you weigh up the pros and cons of each type of borrowing in order that you find the most appropriate home loan.
James McHeggins writes for JustRemortgages.com one of the UK’s top sites for the latest remortgage rates and best remortgage deals.