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Debt consolidation, home improvement

When Is a Remortgage Less Favourable than a Homeowner Loan?

If you are looking to raise a sum of cash secured on your home you have one of two main choices; a remortgage or a secured homeowner loan. Both involved a company lending you money based on the equity you have in your home, and in both cases the lender takes a legal ‘charge’ over your property. If you fail to keep up your repayments on the loan, your home is at risk.

However, there are various important differences between a remortgage and a secured loan. A remortgage is not necessarily the better option, as our guide shows.

Great Existing Rate on Your Main Mortgage

When you remortgage to another provider, your entire mortgage is repaid and you take out a brand new mortgage with the new lender. If the new lender is offering you a better interest rate or better terms, then this may well be a viable option for you.

However, what happens in the situation where you need to borrow additional cash, but the interest rate on your main mortgage is very good?

You may not wish to remortgage the whole amount of the loan as you are benefiting from a terrific interest rate on your main mortgage. You don’t want to lose that rate by remortgaging the whole home loan to another company.

In this situation, a secured loan may be more beneficial. You are able to borrow the additional funds that you need but you don’t have to redeem your current mortgage. You get to keep your great mortgage rate and still borrow the additional money that you need.

Early Repayment Charges

Many mortgage deals in the UK come with ‘early repayment charges’ (ERCs). Whether you have a fixed or discounted variable rate with your lender, the chances are that you will be ‘tied in’ to your mortgage deal for a set period.

For a fixed rate, you are normally committed to the deal for the term of the fixed rate, whilst discounted deals often run for 2-5 years.

If you repay your mortgage during one of these rates, your lender will quite often levy an ‘early repayment charge’. This can be anything from a number of days interest to a percentage of the amount you repay. Often, the ERC can run into several thousand pounds.

Frequently, it is not financially worthwhile to remortgage if you have to pay early repayment charges to your current lender. Whilst it is not impossible, these charges generally outweigh any savings you make from moving onto a better mortgage rate with a new lender.

So, if you need to borrow additional cash, it may make more sense to consider a homeowner loan. This allows you to borrow the amount you need without repaying your current mortgage. This means you avoid paying the ‘early repayment charges’ to your current lender.

Costs

One further reason you might want to consider a homeowner loan above a remortgage relates to the costs involved.

The costs of remortgaging can easily run into hundreds of pounds. You may have to have a valuation of your home and there may also be conveyancing fees to pay for the legal work involved in moving your mortgage. You may also have to pay a booking or arrangement fee to the new lender to secure a discounted or fixed rate mortgage deal.

A homeowner loan often comes with little or no set-up fees. This means you can borrow the cash you need without spending a fortune on unnecessary charges.

To use your home to raise money at a competitive APR, please fill this homeowner loan form.

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