As a homeowner, you naturally benefit from a comparatively broad range of borrowing options. Assuming you have already repaid a decent chunk of your mortgage, you could borrow a significant amount of money against the value of your home, for flexible long-term repayment.
When you are looking to raise funds for a major purchase or outgoing, the first choice for most homeowners is remortgaging. This is where a new mortgage is taken out to pay off the remaining balance on the original mortgage and to raise the extra money needed for the intended purpose.
But there are many instances where taking out a secured loan could be better than remortgaging.
How Does a Secured Loan Work?
Taking out a secured loan involves securing a “second charge” loan against the equity you have tied up in your home. If your home is worth £400,000 and you have repaid £200,000, this is your equity; you could then borrow against this £200,000 in the form of a second charge secured loan, while continuing to repay your “first charge” mortgage as normal.
This will technically leave you with two loans secured against your home, but could still put you in a preferable position to remortgaging. Where any of the below scenarios apply, a second charge secured loan could be a better option than taking out a new mortgage:
1. You need to raise the money as quickly as possible
A remortgage application can take almost as long to process as a conventional mortgage application. This means that you could be waiting weeks or even months to get your hands on the funds you need. With secured loans – products like bridging finance in particular – the application process is much faster. It may even be possible to access the money you need within a few working days, depending on your requirements and circumstances.
2. You are happy with your current mortgage terms and conditions
Opting for a secured loan over remortgaging also means being able to hang on to your existing mortgage rate and all associated T&Cs. In today’s turbulent economic climate, it is becoming increasingly difficult to remortgage competitively. It can also be a long and drawn-out process, prompting many to stick with their existing deals where possible.
3. I want to borrow with a high LTV
Most conventional mortgage lenders will not offer anything higher than 80% LTV. A few may take their maximum LTVs as high as 85%, while others will cap their maximum loan sizes at 75% LTV. Meanwhile, many specialist lenders routinely issue secured loans of up to 95% LTV. This means that if you are looking to borrow as much as you can against the equity you have in your home; a secured loan could be a far better option than a remortgage product.
4. My credit history is far from perfect
Increasingly, it is becoming all but impossible to qualify for mortgage products of any kind with poor credit. Unless you have a pretty spotless track record, you will be instantly countered out of the running. Elsewhere, specialist lenders establish eligibility on the basis of a much broader range of factors. If you are in a generally stable financial position and can clearly afford to repay the loan, you have every chance of qualifying for a second-charge secured loan.
5. I work for myself
If you have recently started up as a self-employed worker, you may have little to no chance of qualifying for a conventional mortgage. Major lenders continue to discriminate unfairly against self-employed workers – particularly those who have not been in business for long. Specialist-secured loans are more flexible and accessible in nature, with a broad range of options available for self-employed workers and individuals with no formal proof of income.