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Secured Homeowner Loan vs Remortgage - Which One to Choose?

Are you looking to borrow money secured on your home?

If so, you have two main choices. A remortgage involves you switching your entire mortgage balance to a new lender and, if necessary, borrowing some additional funds. A secured loan means that your mortgage remains where it is and you take an additional sum with a second, different lender.

There are various pros and cons of each method of borrowing. So, to help you decide which one might be more appropriate for you, here are four questions you should ask when considering a secured homeowner loan versus a remortgage.

What Are the Set-Up Costs and Fees?

One of the main differences between a secured homeowner loan and a remortgage relates to the set up fees and charges. If you plan to remortgage to another lender you may well incur a number of charges, including a valuation fee, legal fees for the conveyancing work and an arrangement or booking fee. These fees can often run into several hundred pounds.

A secured homeowner loan will typically attract far fewer fees than a remortgage.

Are There Any Penalties for Leaving Your Current Lender?

If you have a discounted or fixed rate deal on your main mortgage you may be ‘tied-in’ with your current lender. This means that there may be ‘early repayment charges’ (ERCs) due if you pay off your main mortgage.

One of the main advantages of a secured homeowner loan over a remortgage is that you do not have to pay off your existing mortgage to borrow additional funds. Your existing mortgage remains as it is and you take a second loan with a new lender.

So, if you have early repayment charges on your current mortgage, a remortgage may see you paying thousands of pounds in penalties to your lender. So, a secured homeowner loan may be a better option for you as you can leave your mortgage as it is.

Do Your Personal Circumstances Allow a Remortgage?

If you apply for a remortgage, a lender will underwrite your application. This generally means that:

  • You will have to prove your income to cover the whole of the total mortgage
  • You will be restricted by the maximum ‘loan to value’ of the new lender
  • The lender will access your credit file

If your circumstances have changed since you took out your original mortgage you may find that it is more difficult to secure a remortgage. You may have become self-employed, your income may have fallen or your credit rating may have deteriorated. In these situations, you may find it tough to agree a remortgage.

A secured homeowner loan has different underwriting criteria. Lenders may charge slightly higher rates but they will often consider your application if you are self-employed or if your credit rating is less than perfect.

Which Is More Financially Worthwhile?

When considering a secured homeowner loan or a remortgage it is important to work out which option makes more financial sense to you.

For example, if you have thousands of pounds worth of ‘early repayment charges’ for remortgaging, a secured homeowner loan may be more cost-effective. However, if you have plenty of equity in your property, a good credit score and a high income, a remortgage may offer better value for money.

As well as the interest rate being charged on the borrowing, don’t forget to take fees, charges and any penalties into account.

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