The Options For Home Refinancing

When it comes to making a decision on whether to opt for a secured loan or remortgage, a lot of confusion is thrown up about what the differences are. Not only that, but questions such as which is more beneficial? Is one option more suited to my needs? And a whole host of other questions many feel they don't have the answer to, the easy answer is that remortgaging costs less as secured loans will have high interest charges.

Secured loans carry with them much higher charges than remortgages. Although it's not quite as cut and dried as choosing the cheapest option for those looking for a financial fix. Some homeowners may be in a position where they cannot remortgage their property as they are still tied to their original mortgage agreement. Therefore, looking for the best secured loan may be the only option. It is important to understand the benefits and disadvantages of both options though before jumping into a policy.

Let's begin with remortgages, current economic circumstances at the time of writing mean a maximum Loan to Value (LTV) rate of 90% is needed to gain a remortgage deal. LTV is the ratio of money loaned to the price of the property, to use an example, if you wish to borrow £130,000 to pay for a £150,000 property, the LTV is 87%. The percentage is calculated by dividing the loan amount and property price amount and from that converting the answer into a percentage.

The major plus point of remortgaging is the fact there is no ceiling on how much you can borrow. Remortgaging just doesn't have to be about paying debt off or consolidating, it can be used to refurbish your property or build an extension, loft conversion, conservatory or any other improvements or repairs your house needs. Almost all lenders now include early redemption charge's (ERC's) in mortgage agreements and contracts as a protection against lost earnings if one of their borrowers remortgages with them or a rival lender.

And it's not only ERC's that you have to worry about when obtaining a remortgage. Usual additional fees include lender arrangement, legal and administration fees. However, some lenders will offer free or discounted legal fees, but be wary with these offers, as they can often prove even more expensive than paying your own legal costs. It can also take a lengthy period of time for a remortgage arrangement to be fully completed. This is because they are classed as first charge due to the level of legal paperwork involved which can only be completed by a specialist.

So what about secured loans? Well, they generally have fewer charges connected to them, and any that are required depends largely upon the lender. Some will charge lender arrangement fees while others will only charge a broker fee. For this reason, the application process is much quicker than a remortgage application, usually completed between two to four weeks. Additionally, secured loans are a great way of obtaining that much needed cash at lower rates than an unsecured loan.

Unlike remortgages though, secured loans have limits on how much can be borrowed, which generally ranges from £25k to £100k. The other negative of taking on a secured loan is the fact that the payments and debt will be running parallel with your mortgage, most likely from a different creditor, which if you're not careful with your balance of payments can complicate things. To secure the secured loan, you'll be looking at a low LTV also, the average hovering around 65% LTV range.

What makes things a little complicated when it comes to deciphering a remortgage from a secured loan are their close similarities. While they both involve borrowing money over a long period of time, they are also both secured against property. This means there is a very equal risk of your property becoming repossessed should you fail to keep up with the repayment terms. Additionally, both a remortgage and a secured loan also require a significant amount of positive equity in your property in order for the lender to feel totally comfortable in lending to you. This is where affordability comes into it. Before you even contemplate either a remortgage or a secured loan, you must ensure that you are in a secure financial position where your future income is stable.

So now we've addressed the advantages, disadvantages and similarities of both secured loans and remortgages, now the decision is up to you. While remortgages are largely considered the advisable option as they are much easier to handle and are considered 'affordable', secured loans are sometimes the only option for some.

If, after weighing up all the pros and cons, you are still unsure as what path to take, then speak to a financial adviser. They will not only point you in the right direction for your personal situation but will also help you to find the most competitive deals on the market, providing you ensure they are an independent adviser of course!