Which is best – a remortgage or a homeowner loan?

If you’re looking to borrow a lump sum secured on your home you have two main options.  A remortgage involves you switching your mortgage from one lender to another and borrowing an additional amount in the process.  A homeowner (or ‘secured’) loan involves taking out a loan separate to your main mortgage, often with a different lender.

Our guide looks at the advantages and disadvantages of both types of borrowing.

Advantages and disadvantages of remortgages

A remortgage is a popular way of borrowing additional money to undertake home improvements, consolidate debts or to pay for a one off purchase.

The main advantage of a remortgage is that the interest rates available on the borrowing tend to be very low.  Depending on the proportion of your home’s value that you want to borrow (the ‘loan to value’) remortgages can be arranged at rates as low as 4 per cent.

Remortgages also result in one loan, one monthly payment and one direct debit.  This is compared to a homeowner loan which will be taken in addition to your main mortgage and so you’ll have two separate payments to make.

The main disadvantage of a remortgage is that they can be difficult to obtain.  Banks have tightened their lending criteria over recent years and it can now be difficult to secure a remortgage if you want to borrow a high ’loan to value’, if you’re self employed or if you have any credit issues – however minor.

Advantages and disadvantages of homeowner loans

Whilst homeowner loans are generally more expensive than remortgages, they remain cheaper than many other forms of borrowing such as credit cards and personal loans. They can therefore still remain a useful way of consolidating debts or for raising a lump sum for another purpose.

If you currently have a very good rate on your main mortgage you may not want to stop benefiting from that deal.  Or, you may have significant ‘early repayment charges’ to your current lender if you remortgage elsewhere.

In this situation, a homeowner loan can help you.  You can leave your mortgage on its current rate and take out an additional secured loan with another provider.

As homeowner loans are secured on your property, lenders are often much more likely to agree credit than they are for unsecured products.  This means that you can often benefit from a homeowner loan if you have been declined for other sorts of credit such as a remortgage, credit card or personal loan.

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