Remortgage vs Secured Loan

How Remortgaging Works

Remortgaging means switching your existing mortgage to a new deal, either with your current lender (a product transfer) or with a different provider. If you need to raise additional funds, you can borrow more than your outstanding balance as part of the new mortgage — this is known as capital raising or remortgaging to release equity.

Here is how the process typically works:

• Application: You apply for a new mortgage that covers your existing balance plus any additional amount you wish to borrow.
• Valuation: The new lender values your property to confirm there is sufficient equity.
• Affordability assessment: Your income, outgoings, and credit history are assessed to ensure you can afford the new, larger mortgage.
• Legal work: A solicitor handles the transfer of the mortgage from your old lender to the new one.
• Completion: Your old mortgage is paid off, and the new mortgage — including any additional borrowing — begins.

The entire process typically takes four to eight weeks, though this can vary. You end up with a single mortgage, a single monthly payment, and a single interest rate applied to the whole amount borrowed.

Key advantages of remortgaging:

• Often the cheapest way to borrow if you can access a competitive rate on the full amount.
• Single monthly payment to manage.
• Wide range of products and lenders available.
• Opportunity to review your overall mortgage deal at the same time.

Key disadvantages:

• You lose your existing mortgage rate, which may be more competitive than what is currently available.
• Early repayment charges (ERCs) on your current deal can be substantial.
• The process takes longer than a secured loan in some cases.
• You need to pass the new lender's full affordability and credit checks.

How a Secured Loan Works

A secured loan — sometimes called a second charge mortgage or homeowner loan — is a separate loan that is secured against your property alongside your existing mortgage. Your current mortgage remains untouched; the secured loan has its own interest rate, term, and monthly repayment schedule.

The process for obtaining a secured loan involves:

• Application: You apply through a lender or broker, providing details about your property, existing mortgage, income, and borrowing requirements.
• Valuation: The lender arranges a valuation of your property to confirm sufficient equity.
• Consent from your first charge lender: Your existing mortgage lender must give consent for a second charge to be placed on the property. This is normally a formality.
• Legal work: A solicitor registers the second charge against your property.
• Funds released: Once everything is in place, the funds are typically released within two to four weeks.

Key advantages of a secured loan:

• Your existing mortgage remains in place — you keep your current rate and terms.
• Particularly beneficial if you are on a competitive fixed rate with significant ERCs remaining.
• Can be faster to arrange than a remortgage in some cases.
• Specialist lenders may be more flexible with credit issues.

Key disadvantages:

• Interest rates on secured loans are typically higher than first charge mortgage rates.
• You end up with two monthly payments to manage.
• The total cost of borrowing may be higher than remortgaging if you could access a competitive rate on the combined amount.
• Your home is at risk if you fail to keep up with repayments on either the mortgage or the secured loan.

Comparing the Costs: Remortgage vs Secured Loan

Understanding the true cost of each option is crucial when deciding between a remortgage and a secured loan. The cheapest option depends entirely on your individual circumstances.

When remortgaging is typically cheaper:

• Your current deal has ended and you are on your lender's standard variable rate (SVR).
• You have no or low early repayment charges on your existing mortgage.
• The current mortgage market offers rates significantly better than secured loan rates.
• You need to borrow a large amount, making the lower interest rate on a remortgage more impactful over the loan term.

When a secured loan is typically cheaper:

• You are on a competitive fixed rate with substantial ERCs remaining. The cost of paying the ERCs can outweigh the savings from a lower remortgage rate.
• You only need to borrow a relatively small amount. Taking the higher secured loan rate on a small sum may cost less overall than remortgaging the entire balance at a slightly higher rate than your current deal.
• Your circumstances have changed (income reduction, credit issues) and you would not qualify for a competitive remortgage rate.

The best way to determine which is cheaper for your specific situation is to have a broker run the numbers on both options side by side, factoring in all fees, charges, and the total cost over the life of each loan.

When to Choose a Remortgage Over a Secured Loan

A remortgage is often the preferred option in several common scenarios. Understanding when it makes sense can help you make a more confident decision.

Your current deal is ending or has ended:

If your fixed rate, tracker, or discount period is about to expire — or has already expired and you are on the SVR — remortgaging is almost always the right move. You can switch to a new competitive rate while also raising additional funds, without losing anything on your existing deal.

You want the lowest possible interest rate:

First charge mortgage rates are generally lower than second charge (secured loan) rates. If accessing the cheapest borrowing is your priority and you do not have significant ERCs to contend with, remortgaging typically offers the better rate.

You want simplicity:

Remortgaging gives you a single mortgage with one monthly payment, one interest rate, and one lender to deal with. If managing multiple loans does not appeal to you, remortgaging keeps things straightforward.

You need to borrow a large amount:

For larger amounts, the difference in interest rates between a remortgage and a secured loan becomes more significant. Borrowing £100,000 at 4% rather than 6% saves a substantial amount over the term. For big borrowing, remortgaging usually wins on cost.

Your credit profile is strong:

If you have a good credit score, stable income, and a clean payment history, you are well-placed to access competitive remortgage deals from a wide range of lenders. In this situation, remortgaging is likely to be the more cost-effective choice.

You want to restructure your mortgage:

Remortgaging also gives you the opportunity to change other aspects of your mortgage — for example, switching from interest-only to repayment, extending or shortening the term, or switching between fixed and variable rates.

When to Choose a Secured Loan Over Remortgaging

There are several situations where a secured loan is the smarter financial choice, even though the interest rate may be higher.

You are locked into a competitive fixed rate:

If you secured a low fixed rate and still have several years remaining with significant early repayment charges, breaking that deal to remortgage could be very costly. A secured loan allows you to borrow the additional funds you need while keeping your existing rate intact. The savings from retaining your low rate can far outweigh the slightly higher cost of the second charge loan.

Your circumstances have changed:

If your income has decreased, you have become self-employed, or your credit history has taken a hit since your original mortgage was arranged, you may struggle to qualify for a competitive remortgage. Secured loan lenders often have different criteria and may be more flexible, particularly for applicants with imperfect credit or non-standard income.

You need funds quickly:

Secured loans can sometimes be arranged more quickly than a full remortgage, particularly if the remortgage involves switching to a new lender. If speed is important — for example, to fund an urgent home repair or seize a time-sensitive opportunity — a secured loan may be the faster route.

You want to borrow a small amount:

If you only need to raise a relatively modest sum, the cost of remortgaging your entire mortgage (including potential ERCs, valuation, and legal fees) may not be justified. A secured loan for a smaller amount can be more proportionate and cost-effective in this situation.

You want to keep your financial arrangements separate:

Some homeowners prefer to keep additional borrowing separate from their main mortgage. A secured loan provides a clear distinction between your primary mortgage and any additional funds raised, which can make budgeting and financial planning easier.

A whole-of-market broker can model both scenarios using your actual figures and show you the true cost comparison, taking into account all fees, rates, and repayment terms.

Making the Right Decision: Key Questions to Ask

Before choosing between a remortgage and a secured loan, work through these key questions with your adviser:

• What are the early repayment charges on my current mortgage? If they are substantial, a secured loan may be more cost-effective. If they are zero or very low, remortgaging is likely the better option.
• What rate am I currently paying? If you are on a rate well below what is currently available in the market, protecting that rate with a secured loan makes sense. If you are on the SVR or an uncompetitive rate, remortgaging to a better deal is the priority.
• How much do I need to borrow? For larger amounts, the lower interest rate available through remortgaging can save significant money. For smaller amounts, the savings may not outweigh the costs and disruption of remortgaging.
• Has my financial situation changed? If your income or credit profile has deteriorated, you may not qualify for the remortgage rates you need. Secured loans offer an alternative route in these circumstances.
• How quickly do I need the funds? If time is of the essence, a secured loan may be faster to arrange.
• What is the total cost of each option over the full term? This is the most important question. A good broker will calculate the total cost of both options — including all fees, interest, and charges — so you can make a true like-for-like comparison.

There is no universally correct answer. The right choice depends entirely on your individual circumstances, and what works for one homeowner may not work for another. Taking professional advice ensures you consider all the relevant factors and avoid costly mistakes.

If you would like to compare both options, our free, no-obligation service can connect you with a specialist adviser who will assess your situation and recommend the most cost-effective route forward.