If you already have a mortgage and you’re looking for additional finance, or to protect your existing deal, remortgaging isn’t necessarily the best option. In fact, increasing numbers of consumers are looking to a secured loan as a more flexible and simple approach to restructuring finances. Many have found that a secured loan is actually a better option than remortgaging.
How does a secured loan work?
A secured loan is lending like any other in that you apply to a lender to borrow a specific amount and repay that, with interest, over an agreed period of time. When you apply for a secured loan you’re offering something you own as security for the borrowing – in this case your house. The lender will take a charge over it to protect its loan if you’re unable to repay. Even if you have a mortgage (often referred to as a “first charge”) on your property, it’s usually still possible obtain a secured loan (a “second charge”). You may find that some of the best lending rates for a second charge are available by applying for that secured loan with your mortgage lender, although we’d recommend you use a broker, like us, for more choice.
How much does a Secured Loan cost?
What you pay for a secured loan will vary from lender to lender, and depending on your credit history. As a secured loan is a “second charge” the interest rates tend to be slightly higher than those available for a mortgage. This is because the secured loan lender will only get paid after the first charge lender if there is a default and the property has to be sold to pay off creditors.
When is a secured loan a better option than remortgaging?
If you identify with any of the statements below then you might find a secured loan a better choice than going through the process of remortgaging.
“I need finance, fast.” Remortgaging is not a swift process – in fact, mortgages take longer than any other type of lending to arrange. If you need to have access to urgent finance then a secured loan might be a faster choice. If a valuation is required then this may slow the timetable down (although it’s likely to be faster than remortgaging). Depending on your circumstances, many lenders will be able to expedite the approvals process to within a day or so.
“My mortgage rate is great and I don’t want to change it.” New mortgage rates are not as attractive today as they were so if you already have a rate that works you may not want to change it simply to extend your finance. In this situation, a secured loan could be a far better option than remortgaging.
“I’m looking for 95% Loan to Value (LTV)” Today, most mortgage lenders won’t offer more than 90% LTV. So, if you need a higher number than this a secured lender may be the only choice. It’s worth noting that in order to be approved for a more than 90% LTV secured loan you will need to have simple and straightforward circumstances.
“I want to borrow but I have bad credit.” Lending decisions are based on individual circumstances and so, even with bad credit, you could still be able to remortgage. However, secured lenders tend to be more flexible when it comes to applicants who don’t have the perfect credit score. It will also be possible to obtain a secured loan with a smaller deposit.
“I’m newly self-employed.” Lenders partially rely on statements of income from employers to determine whether a loan or mortgage is affordable for the borrower. So, becoming self-employed can significantly complicate the situation. Most mortgage lenders look for between one and three years’ worth of accounts when assessing the creditworthiness of a potential borrower. If you’ve recently become self-employed and don’t have these records – or the structure of your business is now different you may struggle to satisfy mortgage lender conditions but could still be acceptable for a secured loan.
“I want to borrow on an interest-only basis.” Most lenders just don’t offer interest-only mortgages today so it’s not possible to repay in this way if you remortgage. However, some secured lenders can work with interest-only (i.e. repayments that only cover the interest on the loan and not the capital amount borrowed too).
Secured loans are proving increasingly popular – there has been a 6% year-on-year rise in new second charge business completions and 85% of mortgage intermediaries say that this type of lending is on their books. For those who are looking for fast finance, recently self-employed or keen to preserve an existing mortgage deal, a secured loan could be a far better choice than remortgaging.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley