The Key Differences
A remortgage replaces your current mortgage with a new, larger one. You borrow more than you owe and keep the difference as cash. A secured loan, by contrast, is an additional loan that sits behind your existing mortgage as a second charge on your property.
With a remortgage, you deal with one lender and one monthly payment. With a secured loan, you have two separate agreements and two monthly payments. The interest rate on a remortgage is usually lower, but there are situations where a secured loan works out better overall.
When a Remortgage Makes More Sense
Remortgaging is often the cheaper option because first-charge mortgage rates are lower than second-charge rates. It makes particular sense if your current mortgage deal has ended and you are on your lender's standard variable rate, as you can secure a better rate and raise extra funds at the same time.
It also suits borrowers who want to simplify their finances with a single monthly payment and a single lender. If you have built up significant equity and have a good credit score, a remortgage is likely to offer the most competitive overall cost of borrowing.
When a Secured Loan Is the Better Choice
A secured loan can be the smarter option if you are locked into a mortgage deal with high early repayment charges (ERCs). Breaking your current fix to remortgage could cost thousands in penalties, making a separate secured loan cheaper despite its higher rate.
Secured loans are also useful if you need funds quickly, as the process is often faster than a full remortgage. They can suit borrowers who have had a change in circumstances — such as moving to self-employment — that might make passing a new mortgage affordability check difficult, even though they can comfortably afford the additional secured loan payments.
Additionally, if you only need to borrow a relatively small amount, a secured loan avoids the costs of remortgaging your entire balance, such as valuation fees, legal fees, and arrangement fees on the full loan.
Comparing the Total Cost
To make a fair comparison, add up all costs for each option. For a remortgage, factor in any ERCs on your current deal, arrangement fees, valuation fees, and legal costs. For a secured loan, consider the interest rate, any arrangement or broker fees, and the total interest payable over the term.
A mortgage broker can run the numbers for both scenarios and show you which route saves money over the period you plan to borrow. Sometimes the answer is not obvious until you see the figures side by side.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.