Most homeowners weigh the pros and cons of remortgages and secured loans for the purpose of finding the most fitting financial solution for them. Differentiating between secured loans and remortgages so you can figure out the most suitable financial solution for you is what this article strives to do. For quite some time, a lot of people considered remortgages as a cheap method of raising money. One of the reasons why most people thought so is that interest rates that you can acquire on a mortgage are lower than those you acquire from an unsecured loan. However, with increased regulation and Financial Services authority in the past years, most financial experts will advise you against remortgaging if you want to raise some money. Based on what these financial experts have deduced, the better financial option these days in most occasions will be a secured loan over a remortgage.
One such example is when a mortgage borrower will be dealing with a significant redemption penalty on their current mortgage. These penalties happen when a borrower decides to only pay off part of their mortgage during a period when rates are cheap or when they decide to switch lenders. You have to remember that the terms and conditions from one lender to the next also vary. Some mortgages with fixed rates may carry up to 7% of penalties of the outstanding balance of the mortgage if the borrower redeems it during the fixed rate period.
For you to know which is the most financially sound decision between secured loans and remortgages, you have to consider the overall loan cost. As you compare between these two financial options, the APR can be a helpful tool because it also includes associated charges and fees into consideration. When it comes to processing remortgages, a lot of fees are involved in the process such as broker fees, lender fees, administration and valuation fees, and even legal fees. Meanwhile, secured loans only have a few additional fees, which are often subjected to the lender’s arrangement fee and a broker’s fee.
According to financial experts, you can determine which of the two financial solutions bring you the most advantage when you compare the total cost of the remortgage process with secured loans. Borrowers who have a poor credit history can benefit from this method. For mortgages taken out before facing any credit problems, getting extra cash through a remortgage may mean paying a higher interest rate for your total mortgage. Meanwhile, getting a secure loan means benefitting from a prime interest rate on your mortgage. At the same time, for your new loan, you will only be charged a non-conforming rate.
When you decide between the two financial options, you also need to look into the speed by which the additional funds will be given to your account. Generally, you can get funds from secured loans much faster than a remortgage.