Last reviewed on 31st August 2023 by Martin Alexander (Mortgage Advisor)
If you’re unsure about whether to remortgage or get a secured loan, it’s recommended you speak to an advisor. This is because your choice will depend on your own circumstances and the current health of your finances.
Whether you get a secured loan or remortgage, both are secured against your property by the lender. As a result, there’s a risk of repossession if you fall behind with your payments. This is why it’s important to select the right option from the start.
What makes secured loans and remortgages different?
A remortgage would replace your existing mortgage with a new one. As a result, you’re able to switch lenders and mortgage rates.
Remortgaging can be useful in the following situations:
- Your initial mortgage term has ended
- To get a better mortgage rate
- Change your mortgage type
- To release equity and borrow against your home
A secured loan would be an additional loan to your mortgage. This means that your mortgage stays the same but you’d have an additional loan to think about. A secured loan is also known as a second charge and can be useful in the following situations:
- To consolidate debt
- Home improvements
- If you’d like to keep your existing mortgage
When is a secured loan better than a remortgage?
Secured loans can be better than a remortgage in the following situations:
- You’re already on a great mortgage rate – If you’re already on a great mortgage rate, it may be unwise to remortgage. This is especially true if available rates are higher than your current mortgage.
- You need money fast – If you need capital as a matter of urgency, then a secured loan may be the only possible option and can be approved much faster than a remortgage.
- Your mortgage has a large early repayment charge (ERC) – If you’re on a fixed-term mortgage, it’s likely you’ll have to pay an early repayment charge if you remortgage early. As a result, a secured loan could be a better option compared to a remortgage.
- You’re unable to remortgage – You may be unable to remortgage as a result of a change in circumstances. For instance, you may have recently become self-employed or reduced your working hours. Recent changes in your finances can make getting a mortgage difficult. If you don’t qualify, a secured loan may be your next option.
- You have bad credit – Getting a remortgage with bad credit is possible but can be difficult. You’ll need to make sure the lender you’ve applied with accepts your credit issues. It’s possible to remortgage with issues such as bankruptcy and county court judgements. It all depends on various other factors such as when your credit issues occurred and how much deposit you can put forward.
Applying for a secured loan with bad credit can be high risk, so it’s not something you’d want to rush.
Learn more: How to get a secured loan with bad credit
Are secured loans more expensive than mortgages?
The rates for secured loans will typically be higher than remortgage rates. This is because of the increased risk that the lender is taking. That being said, it’s likely you’d pay more interest with a mortgage as the loan will be taken over a longer period of time.
If your current lender agrees to provide you with a secured loan, they won’t place a second charge on your asset. A secured loan from your existing lender would be known as a further advance. The benefits of using your existing lender are that they may offer you preferential rates. This isn’t always the case, so do check what your current lender is prepared to offer you.
There are a lot of risks involved for additional lenders willing to offer secured loans. This is because your original lender will be first entitled to any equity in the property. Any remaining lenders will get funds that are left. There’s a chance that there won’t be any funds remaining and in cases where this happens, lenders can lose out. This is often why secured loans have higher rates when compared to mortgage rates.
What to consider before applying for a secured loan
Points to consider before applying for a secured loan:
- The amount you want to borrow. Smaller loans will of course be easier to repay than larger loans.
- Whether you can afford the loan repayments
- Is a secured loan better suited than a remortgage?
- Try and improve your credit score if you’ve recently run into credit issues
- Shop around to see which lenders have the best rates, but don’t apply with multiple lenders
What to consider before applying to remortgage
It’s important to consider the following points before remortgaging:
- The mortgage rate you require and the length of the term
- Will you be releasing any equity?
- Do you need to switch lenders?
- How will the cost of a remortgage affect your financial situation?
- Speak to an advisor if you’ve run into credit difficulties
- Avoid applying with multiple lenders but do shop around for competitive rates
Should I remortgage or get a secured loan?
Anyone looking to raise capital should always consider the traditional method of remortgaging first. This is because the rate of borrowing is often cheaper when compared to secured loans. Always aim to get a handful of remortgage quotes before applying for a secured loan.
If you need a financial boost, a secured loan may be your only option. Consult an advisor who understands the market and has access to specialist lenders that offer both mortgages and secured loans. Your advisor can then demonstrate each product and explain its advantages and disadvantages. Based on this, they can then recommend suitable products.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.