Which is better Remortgaging or Getting a Secured Loan?

Remortgaging means you negotiate with your existing mortgage lender to give you a bigger mortgage. If your existing mortgage is for £130,000 and the value of your house increases, the bank will be willing to lend a higher amount against the increased value of your house. If you remortgage to get £150,000 in effect it means that you have given yourself a cash loan of £20,000. Furthermore, this loan will be at the same interest rate as your mortgage.

Advantages of Remortgaging.

1. Easy to manage because it is with same lender, therefore, still only 1 monthly repayment to make.

2. Interest rate on remortgaging is usually lower than on a secured loan.

3. When you remortgage to get a bigger loan, it is also a good opportunity to remortgage to get a lower interest rate on your existing mortgages.

Advantages of Secured Loans.

Although remortgaging usually has a lower interest rate it is not always the best solution. In particular short term cashflow problems may be best served by an ordinary secured loans. There are some benefits of secured loans, which mean they are more advantageous than secured loans.

1. Secured loans are usually paid back over a short time period of 3-4 years. Therefore, the compound interest can actually be lower. With remortgaging, the debt may last for 30 years or more, therefore, the total interest bill can be higher. A secured loan, on the other hand, is paid off in a relatively short time; therefore, it accumulates less interest.

2. Secured loans give a definitive target for reducing payments in the short term, With a secured loan you can have the target to pay off the debt soon and not add to your long term mortgage problem.

3. With a secured loan you are less vulnerable to negative equity should house prices fall; however in practise it matters little whether the debt is in your mortgage on in a loan.

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