Is it better to get a secured loan or remortgage?

What’s the difference between a remortgage and a secured loan?

Remortgaging means you replace your current mortgage with a new one. You might stay with your current lender or choose a different one. People sometimes remortgage to:

• Try to get a better interest rate when their current deal ends
• Look for more flexible payment options
• Borrow extra money for home improvements or paying off debts

A secured loan means you borrow additional money on top of your existing mortgage. You don't replace your mortgage – you add another monthly payment that you'll need to manage. People sometimes use secured loans for:

• Debt consolidation (combining multiple debts into one payment)
• Home improvements
• Large purchases

Understanding the costs

Secured loans often come with higher interest rates compared to mortgages, as lenders consider different risk factors. If they ever need to sell your home to recover their money, they must pay off your mortgage first, then the secured loan.

However, remortgaging might end up costing you more money over many years. This is because you could be spreading the payments over a longer time. You'll also take longer to fully own your home, which means you could be in debt for longer.

When might a secured loan be worth considering?

A secured loan might be worth exploring if:

• You need money relatively quickly - Secured loans usually take less time to arrange than remortgaging, though this varies between lenders.
• You might face penalties for remortgaging early - Your current mortgage could charge you early repayment charges if you switch before your deal ends.
• You have a low credit score - Some lenders may be more willing to consider secured loan applications from people with credit difficulties.
• Your current mortgage lender won't increase your borrowing - Another lender might consider offering you a secured loan instead.

Take time to carefully consider whether you truly need the money and if you can safely afford the additional monthly payments.

Can you remortgage with a secured loan?

Yes, you can remortgage even if you have a secured loan. You might:

• Borrow extra money with your new mortgage to pay off the secured loan. Then you only have one monthly payment, possibly at a lower interest rate. But you'll likely pay more interest over time because you're spreading payments over more years.
• Keep the secured loan separate and just switch your mortgage. Not all lenders allow this, so check first.

Remember, lenders will consider your secured loan payments when deciding if they'll give you a new mortgage. This affects the interest rate and deal you get.

How much can you borrow?

The amount you can borrow depends on:

• Your income and expenses
• The value of your home
• How much equity you have in your home
• The lender's criteria

Equity means how much of your home you actually own. If your house is worth £200,000 and you owe £50,000 on your mortgage, you have £150,000 in equity (75% of your home's value).

Secured loans usually start at £10,000. You can often borrow more with a secured loan than a regular personal loan because your home guarantees the debt.

For mortgages, lenders typically offer up to around four times your yearly income. But remember – just because you qualify for an amount doesn't mean you should borrow it all. Only borrow what you can comfortably repay.

What happens if you move?

When you sell your home, you must use the money to pay off both your mortgage and secured loan. In some less common scenarios, you might be able to transfer the balances of the loans to your new home, but this is rare, and is down to both lenders to agree on.

Mortgage early repayment charges

If remortgaging with a new provider, check if your current mortgage has an early repayment charge. These charges often get smaller as time goes on. For example, you might pay 5% if you have five years left, but only 1% if you have one year left.

Always factor these costs into your decision. Sometimes the penalties cost more than you'd save by switching.

Things to consider before getting a secured loan or remortgaging

Before deciding on either option, ask yourself:

• How much do I need and for how long?
• What can I afford to pay back each month?
• Have I compared the total cost of different options?
• Will this cost more than it saves after fees and charges?
• Am I extending my debt payments longer than necessary?
• Can I improve my credit score first to get better rates?

Use online eligibility checkers to see your chances of approval without affecting your credit score.

Think about speaking with a financial advisor if you're unsure. They can help you understand which option fits your specific situation best.