Remortgage or Get a Loan?Which is Better?
Have you ever wondered, Is it better to remortgage or get a loan? If you have, one cannot give an outright yes or no. For starters, each has an advantage over the other as well as its disadvantages. Therefore, which you settle for will be dependent on what meets your requirement. If your house is already on a mortgage, you may have been weighing the option of taking another mortgage from a new lender or a new loan entirely.
What is Remortgage?
A remortgage is a process of obtaining a new mortgage on your home and it can be used to replace your current mortgage. In simpler terms, it involves borrowing more money while ending your current mortgage and opting for a new one. This process comes with the benefit of helping you to save money especially if your current mortgage is about to end.
If your mortgage does come to an end, chances are that your lender will switch you to an SVR (Standard Variable Rate) which is not really pleasing given that the rates are higher. Therefore, this brings about the need to remortgage in order to get a cheaper interest rate. Now, If you can look for a better mortgage 14 weeks before it ends, then you can get a better deal.
What is a Secured Loan?
A secured loan means that you will still keep your current mortgage but a new loan will be issued. For the new loan, your property will be used as collateral and as such, your new lender will have secondary legal ownership or equity in it. Since the loan lender has a higher risk, they will want to place the interest rate higher. On the other hand, remortgaging will ensure that the interest is lower while you have a better loan term.
Why a Secured Loan Could Potentially be a Better Option
A secured loan could mean paying higher interest rates, but there are certain conditions such as a shorter loan term that may make it a better option to remortgaging:
- If your financial status has declined since you got your mortgage, then a secured loan may be a better alternative. You may have a lower income in comparison to what was received monthly before due to being self-employed or changing jobs.
- If your lender has a good loan term between five to 10 years and a fixed interest rate is charged, then it may be a better deal to stick with.
- If there are large repayment charges which have been set by your lender which could mean having to pay high fees in other to get out of your current loan.
- A secured loan could offer a total repayment lesser than that of a remortgage if the latter goes on for a couple of years even though the interest rate is lower.
- If your debt has grown small and you have more equity in your property, then switching to a new lender may not be ideal.
- The value of your home has declined and as such, what you owe is larger and your equity is lesser. Imagine having bought a house at $250,000 and it devalues to $20,000.
- You’ve encountered credit problems such as a missed credit card payment, utility, mortgage after the last time you’d taken a mortgage and this could lengthen how long you can find a suitable lender. Here, your credit score will be taken into consideration.
Having gone through the pros and cons of remortgaging and secured loans, you can then decide if a remortgage is a better option over a secured loan, or the reverse is the case. You could also get professional advice that will help you decide on what to settle on. Remember, don’t just take anyone because the prospect sounds good, but by its ability to actually cut down the overall payment you’ll make within the loan term.