What is the difference between secured loans and remortgaging?

If you are choosing to remortgage, you are replacing your existing mortgage with a new one.  However, with a secured loan, you are borrowing another loan on top of your existing mortgage. This guide explores when each option is preferable, helping you make an informed decision based on your finances. It is always recommended to seek independent financial advice before proceeding with either option.

Is it better to take out a secured loan or remortgage?

Deciding between a secured loan or remortgaging depends on your situation and what you can afford. Both options involve borrowing against your property, so it's crucial to make sure you can manage the monthly payments. If not, your home could be at risk of repossession.

When would it be a good decision to choose a secured loan over remortgaging?

Getting a secured loan over remortgaging may be considered a better decision under these circumstances:

If your financial situation has changed

If your financial situation has changed since you first took out your mortgage, a secured loan might be a more accessible option, especially if you’re now self-employed and if you lack the proof of income that lenders sometimes require. 

If you need funds quickly

While timelines for secured loans can vary by lender, they’re often faster to obtain than a remortgage with additional borrowing.

If you’re facing ERCs (early repayment charges) for remortgaging

ERCs could make a remortgage more costly than opting for a secured loan.

If your credit score has declined

If your credit score has dropped since you took out your mortgage, a secured loan may be easier to secure, as some lenders specialise in loans for those with poor credit.

If your mortgage lender won’t allow additional borrowing

If you cannot borrow additionally from you mortgage lender, a secured loan could allow you to borrow more against your property.

If you have a preferential rate on your first charge mortgage

If you'd like to keep a favourable rate on your first charge mortgage, opting for a secured loan rather than remortgaging may be a better choice. This allows you to keep your existing mortgage rate instead of replacing it with a new one.

When would it be a good decision to choose remortgaging over a secured loan?

Choosing to remortgage over getting a secured loan may be considered a better decision under these circumstances:

If you want to lower your interest rates or monthly payment

If mortgage rates have dropped since you took out your first mortgage, remortgaging could allow you to secure a lower interest rate. As a result, monthly payments may be lower which can save you money over time.

If you have a good credit score and stable income

If your credit score or income has improved, remortgaging may benefit you by qualifying for better mortgage terms. This is because you may be able to get a favourable interest rate.

If you don’t face large ERCs (early repayment charges)

If you choose to remortgage and have no / little ERCs, it may be the better option rather than getting a secured loan.

If you want a consolidated mortgage with no additional loans

A consolidated mortgage combines your existing debts, such as credit card balances, personal loans, and overdrafts, into a single monthly payment under your mortgage. If you choose to remortgage to consolidate your debts, you’ll only need to manage one payment each month rather than juggling multiple payments with different due dates, interest rates, and terms without additional loans.

What to consider before taking out a secured loan / remortgaging

Consider how much you can afford and the loan term

Determine how much you need to borrow, how long you need to repay it, and what you can realistically afford each month. Borrowing more will likely increase your monthly repayments, so it’s essential to assess your budget carefully. You can use our budget planner to consider how much you can afford.

Compare the costs

When evaluating secured loans and remortgaging options, carefully compare the costs involved. Look at the APRC (Annual Percentage Rate of Charge APRC), which reflects not only the interest rate but also fees and any additional charges.

Compare these costs against remortgaging options to determine the best deal. If you’re considering remortgaging, assess the overall costs, including interest, fees, and any early repayment charges, to ensure that any potential savings outweigh the total costs.

Consider risks of debt consolidation

If you're planning to consolidate existing debts into your mortgage or loan, remember that while this may lower your monthly payment, extending the loan term could increase the total amount you’ll repay over time. Make sure this aligns with your financial goals and that you’re aware of the long term cost implications.

Avoid multiple applications

Each application may trigger a hard credit check, and too many checks within a short period can negatively impact your credit score, making it more difficult to get approved by some lenders.

To improve your chances of approval, avoid applying for new credit in the months leading up to your remortgage application, as multiple credit inquiries can signal financial instability to lenders and may reduce your likelihood of success.

Consider boosting your credit score

Improving your credit score before applying can increase your chances of approval at a more competitive rate. Read our guide on how does a secured loan affect your credit score to find out more.

Use an eligibility checker

Before applying, consider using an eligibility checker to gauge your chances of approval without impacting your credit score.

Summary

A secured loan adds an extra loan to your existing mortgage, while remortgaging replaces your current mortgage with a new one. Choosing between the two depends on your financial situation and ability to manage payments, as both are secured against your property.

A secured loan may suit those needing quick funds, facing high remortgaging fees, or with a lower credit score. Remortgaging may be the better alternative if the new mortgage you want has lower interest rates, has an improved credit score, or faces no early repayment charges. It is always important to weigh up the costs and benefits of your financial situation before deciding between a secured loan or remortgaging.

At Central Trust, we offer flexible secured loans from £3,000 to £250,000. If you are considering taking out a secured loan and would like to discuss your options with a qualified advisor, call us free on 0800 980 6273 or complete our enquiry form and we will call you back at a convenient time for you.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON YOUR HOME, THE LENDER MAY REPOSSESS IT.