Taking out a secured loan, or remortgaging the property is a decision faced by many individuals looking to refinance their home to raise money. Which one is better for you is not always clear and depends on different considerations. An early payment penalty is typically the most significant factor and usually kicks in if you pay off your mortgage early.
With some lending institutions charging 7.5% or higher as a penalty for paying off a mortgage early, you need to be careful whether this will apply to you. Yes you may have seen remortgage rates that are much less than rates on secured loans, however if you have to pay a large penalty to do the refinancing, your out of pocket expense will be greater.
If you originally took out a mortgage with discounted rates up front, either in a fixed or floating format, more than likely the mortgage will also carry a hefty prepayment penalty. Some of these "discount mortgages" are known to even carry the penalty forward until after the discounted rate period, so be sure to check the fine print carefully.
If you are lucky enough to not be face with a hefty penalty for paying off your mortgage early, then you should start to look at the fees associated with a secured loan transaction. A key aspect for you to think about is that the the rate on a second charge loan will tend to be much higher than what you typically have on a mortgage. This may make the remortgage option appear more attractive on a straight interest rate comparison, but there is more to it than that.
Consider as well the full amount it will cost you to take out a loan will be comprised of more than just the interest due on the loan. There of amounts to be paid for the valuers, administrators, lawyers, bankers and potentially for the title and broker costs. Typically, these costs do not apply across the board, although generally speaking you will have to pay the broker and title fees, even for a secured loan.
And don't forget that mortgages are generally taken out on a much larger total sum, and therefore the APR of the mortgage may well be less than what is being suggested for the secured loan, nonetheless if it is higher than your previous mortgage rate, the overall cost of borrowing, discounted over time, could greatly exceed the savings from the lower transaction cost secured loan.
Don't forget to review the terms for repayment for the different loan proposals you have been offered. If you get locked into a secured loan deal for longer than desired, you could find yourself stuck in a situation where you cannot pay off the loan early, even though you may have the funds available to do so. Also, it seems that borrowers with recent bad credit issues seem to have more success with the secured loan route, as opposed to a remortgage.
If you don't have the luxury of time, a remortgage may not be the best option for you. The approval process for a mortgage typically takes several weeks and it may even be months before the funds are actually deposited into your account. A secure loan, on the other hand, can be approved in two weeks in a best case scenario, so this may be a significant factor for you to consider.
With some lending institutions charging 7.5% or higher as a penalty for paying off a mortgage early, you need to be careful whether this will apply to you. Yes you may have seen remortgage rates that are much less than rates on secured loans, however if you have to pay a large penalty to do the refinancing, your out of pocket expense will be greater.
If you originally took out a mortgage with discounted rates up front, either in a fixed or floating format, more than likely the mortgage will also carry a hefty prepayment penalty. Some of these "discount mortgages" are known to even carry the penalty forward until after the discounted rate period, so be sure to check the fine print carefully.
If you are lucky enough to not be face with a hefty penalty for paying off your mortgage early, then you should start to look at the fees associated with a secured loan transaction. A key aspect for you to think about is that the the rate on a second charge loan will tend to be much higher than what you typically have on a mortgage. This may make the remortgage option appear more attractive on a straight interest rate comparison, but there is more to it than that.
Consider as well the full amount it will cost you to take out a loan will be comprised of more than just the interest due on the loan. There of amounts to be paid for the valuers, administrators, lawyers, bankers and potentially for the title and broker costs. Typically, these costs do not apply across the board, although generally speaking you will have to pay the broker and title fees, even for a secured loan.
And don't forget that mortgages are generally taken out on a much larger total sum, and therefore the APR of the mortgage may well be less than what is being suggested for the secured loan, nonetheless if it is higher than your previous mortgage rate, the overall cost of borrowing, discounted over time, could greatly exceed the savings from the lower transaction cost secured loan.
Don't forget to review the terms for repayment for the different loan proposals you have been offered. If you get locked into a secured loan deal for longer than desired, you could find yourself stuck in a situation where you cannot pay off the loan early, even though you may have the funds available to do so. Also, it seems that borrowers with recent bad credit issues seem to have more success with the secured loan route, as opposed to a remortgage.
If you don't have the luxury of time, a remortgage may not be the best option for you. The approval process for a mortgage typically takes several weeks and it may even be months before the funds are actually deposited into your account. A secure loan, on the other hand, can be approved in two weeks in a best case scenario, so this may be a significant factor for you to consider.
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