If you need funds, there are many different borrowing options you could use to get the money.
Remortgaging your property, taking out a further advance or getting a secured loan are a few of the options you may choose.
Each option has different requirements and features, which can make it hard to know which one is right for you.
In this blog, we will discuss each option and their key differences to help you understand them better.
Remortgaging
A remortgage is when you apply for a new mortgage on your existing property.
You can do this by switching to a different mortgage lender, or by using the same lender with a different product.
You might choose to do this for many reasons, including to get a better rate.
Once your initial mortgage period comes to an end, you may find yourself moved to your lender's standard variable rate (SVR). This SVR might be higher than the fixed or tracker rate product you were on, which means you could end up paying more than necessary each month.
Due to this, many people choose to remortgage to a new product, so that they may reduce their monthly payments.
By doing this, you could have more money spare to spend on other costs, i.e. home improvements or repaying other debts.
Another reason you may choose to remortgage is to release money from your property.
When you remortgage, the value of your home might have increased from when you bought it, or you may now own a larger share of the property compared to when you first got your mortgage.
As a result, you'll have more equity in your property, which you can access by remortgaging. By releasing the equity, you'll get funds that you can use for other purposes.
Secured loans
These are distinct loans. In other words, you are taking out a fresh loan from a new provider. This means they do not involve your current mortgage product or other borrowing.
With this option, a property will be used as security, so if you fail to make your monthly repayments, lenders have the right to repossess the asset.
This means it can put your property at risk, so you must consider your plans before taking out this option.
A secured loan is thought to be more flexible than some other funding options. This means it can be helpful if you have tricky circumstances where mainstream providers might not be able to help. However, if this is the case, you may be charged higher interest rates, as the risk to the lender is greater.
Therefore, it may be a suitable option if you need to borrow extra, but are having difficulty with mainstream mortgage providers.
Further advance
A further advance is where you take out additional borrowing from your existing mortgage provider.
It is similar to a secured loan, as they both use your property as security. However, with a further advance, your lender is the same as your original mortgage provider.
Getting a further advance may limit your options, as you can’t switch to a different provider who may have a better range of products.
With a further advance, you alter your current mortgage terms. This means you have to be careful when you consider this option. Always make sure the new terms suit your needs and you can afford them.
Key differences
Choosing which option suits you best depends on your unique financial situation.
With a remortgage, you essentially switch mortgage products. You do this either by moving to a different provider or using the same lender but a different product. This makes it similar to a further advance.
However, a further advance could be more restrictive, as you have to stay with your current mortgage lender.
Whereas, with a secured loan you are taking out a fresh line of borrowing. It does not impact your existing mortgage. This means you have the flexibility to use any lender you like.
Summary
These are all effective borrowing options, which can help you get the funds you need to cover the costs for many different purposes.
However, each option does carry risks. It’s important that you carefully consider your plans and think about speaking with a financial adviser before applying.
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.
