If you need to borrow a large amount of money to pay for a major investment like an extension or a new car, there are two main financial avenues open to you: remortgage your home, or take out a personal loan. The option you choose could have a big impact on the amount you pay back and potentially on your ability to meet your monthly instalments. To ensure you don’t get yourself into any financial hot water, take a look at our guide to the pros and cons for these different types of loan.
How much do you need to borrow?
Often, homeowners choose to remortgage when they need to release a large amount of equity from their property. Although the exact amount you’ll be able to borrow will depend on your financial circumstances, the value of your property and the level of your existing mortgage, remortgaging may provide homeowners with a larger amount of money compared to a secured loan.
In general, remortgaging offers better interest rates than secured loans. This is especially true if your credit rating isn’t squeaky clean, as lenders are unlikely to offer you their best rates. Therefore, if you’re looking for affordable borrowing, remortgaging may well be your best option.
Length of loan
If you want to borrow a large sum of money but also want to pay it back fast, a secured loan may give you more flexibility than remortgaging. In general, secured loans are repaid over much shorter periods of time, so you’ll be able to pay off the debt sooner rather than later. As loans are repaid more quickly, you may find you actually save money, as you won’t be paying interest for so long.
If you’re liable to pay a penalty fee for early repayment of your mortgage, you may well find that a secured loan is a more affordable option. Even if you end up paying a higher interest rate on the money you borrow, you could find that this still works out to be a lot cheaper than paying a penalty on your mortgage.
If your current mortgage offers very low interest rates taking out a secured loan will also allow you to free up some cash, while still benefiting from your existing low rates.
Change in circumstance
As What House says:
“A secured loan may also be a good option if your circumstances have changed since you took out your original mortgage. For example, you may have become self-employed, your income may have fallen or your credit rating may not be as good as it was before.”
So if you don’t think you’d qualify for a new mortgage, a secured loan is probably the way to go. If you’d like to find out more about remortgaging your property or applying for a loan, we can help. Get in touch with a member of our team today.
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Written by: Andrew Page