If you're thinking about borrowing money, maybe for home improvements or a big life event, you’ve probably asked yourself: is it better to remortgage or get a loan?
It’s not always a straightforward choice, and the right answer depends on your situation. In this guide, we’ll break down both options to help you understand when each one could make sense.
What does it mean to remortgage?
Remortgaging means switching your current mortgage to a new deal. You might stay with your current lender or move to a new one, depending on who’s offering the best rates or terms.
A lot of people remortgage when their fixed-rate deal is coming to an end. Others do it to release some equity from their home, basically borrowing more than they currently owe on their mortgage, and using the extra money for something else.
Common reasons to remortgage:
- Your fixed-rate mortgage is ending soon.
- You want to borrow more money (for renovations or large purchases).
- You’re looking to save money by switching to a lower interest rate.
Pros of remortgaging
- You could save money: If interest rates have dropped, switching to a new mortgage deal could lower your monthly payments.
- You can unlock money from your home: Remortgaging may let you borrow more against your property, which can be used for things like home improvements, paying off debts, or covering big expenses.
- You might avoid higher rates: When your current mortgage deal ends, you may be moved to your lender’s standard variable rate (SVR), which can often be higher. Remortgaging before that happens may help you stay on a better rate.
Cons of remortgaging
- You might have to pay early repayment charges: If you switch before your current deal ends, your lender could charge you a fee, which might cancel out any savings.
- It can take time and involve extra checks: You’ll need to go through a new application, including credit and affordability checks. There might also be legal or admin fees to pay.
- Your home is still at risk if you can’t repay: Borrowing more on your mortgage means bigger monthly payments. If you fall behind, you could risk losing your home, just like with any secured borrowing.
When might a loan be a better option?
A secured loan (also known as a homeowner loan or second charge mortgage) could be a better choice than remortgaging in some situations.
You might want to consider it if:
- Your current mortgage has early repayment charges that would be expensive to pay.
- You’re happy with your current mortgage rate and don’t want to lose it.
However, these loans are still backed by your property, so your home could be at risk if you don’t keep up repayments, just like with a mortgage.
Pros of a secured loan
- You keep your current mortgage: There’s no need to touch your existing deal, which is ideal if it’s a good rate you don’t want to lose.
- Access to large amounts: Depending on your circumstances, you may be able to borrow more than with some other types of borrowing.
- Flexible lending: You may have more borrowing options, even if your circumstances are complex.
Cons of a secured loan
- Two repayments to manage: You’ll have your mortgage and your new loan to pay each month, so you will need to keep track of both.
- Can be more expensive: Interest rates can be higher than mortgage rates, because it is second in priority to your first mortgage.
- Your home is at risk: Like a mortgage, the loan is secured against your property, so missing payments could lead to repossession.
Should you remortgage or get a loan?
The answer depends on your situation. Ask yourself:
- How much money do I need?
- Is my current mortgage deal competitive?
- Am I nearing the end of my fixed term, or would remortgaging now trigger fees?
- Can I comfortably manage the payments?
Summary
There’s no one-size-fits-all answer when it comes to borrowing through a remortgage or a secured loan. Both can offer benefits, but they also come with risks. The right choice depends on how much you need to borrow, your current mortgage deal, and your long-term plans.
If you’re not sure what’s right for you, speaking to an advisor can help you compare the options and understand the true cost of each.
Loans are secured against property - Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
