Understanding the Two Options
Before comparing the two, it helps to understand exactly what each option involves:
Remortgaging means replacing your existing mortgage with a new one — either with the same lender (known as a product transfer) or with a different lender. If you need to raise additional funds, you can borrow more than your current outstanding balance, and the extra amount is added to your new mortgage.
A secured loan (or second charge mortgage) is a completely separate loan that sits alongside your existing mortgage. Your current mortgage stays exactly as it is, and the secured loan has its own interest rate, repayment term, and monthly payment.
Both options are regulated by the Financial Conduct Authority (FCA), and both use your property as collateral. The key differences lie in how they interact with your existing mortgage, the rates available, and the costs involved.
When a Secured Loan May Be the Better Choice
A secured loan is often the preferred option in the following situations:
- You are on a great mortgage rate: If you locked in a low fixed rate, remortgaging would mean giving up that deal. A secured loan lets you keep your current mortgage untouched while borrowing additional funds separately.
- Early repayment charges (ERCs) apply: If you are still within a fixed or discounted period on your mortgage, leaving early could trigger significant ERCs. A secured loan avoids this penalty entirely because your mortgage remains in place.
- Your circumstances have changed: If your credit score has dropped, your income has changed, or the property market has shifted since you took out your mortgage, you may not qualify for a remortgage on favourable terms. Secured loan lenders often have more flexible criteria.
- You want a shorter borrowing term: A secured loan can be arranged over a shorter term than a typical mortgage, which means you can repay the additional borrowing more quickly and pay less interest overall.
- Speed is important: Secured loans can sometimes be arranged more quickly than a full remortgage, particularly if there are complications with your existing mortgage.
In these scenarios, taking out a secured loan can be both more practical and more cost-effective than disturbing an existing mortgage arrangement.
When Remortgaging May Be the Better Choice
Remortgaging tends to be the more cost-effective route when:
- Your current deal has ended: If you have fallen onto your lender's standard variable rate (SVR), you are likely paying more than you need to. Remortgaging to a new deal could reduce your rate and allow you to raise additional funds at the same time.
- No early repayment charges apply: If you are outside any fixed or discounted period, there is usually no penalty for switching lenders, making a remortgage a straightforward option.
- You want the lowest possible rate: Mortgage rates on first charge products are typically lower than secured loan rates, so if you can remortgage onto a competitive deal, the total cost of borrowing may be less.
- You prefer a single monthly payment: Remortgaging combines everything into one mortgage payment, which some people find simpler to manage than having a mortgage and a secured loan running simultaneously.
- You want to borrow a large amount: For very large sums, remortgaging may offer more capacity, particularly if you have substantial equity and a strong credit profile.
Your mortgage broker can run the numbers on both options to show you the total cost over the term you are considering.
