Pros and Cons of a 100% Remortgage versus a Secured Loan

One of the main advantages of owning your own home is that you can release equity on it to raise extra capital. You have two choices if you wish to do this - a remortgage or a secured loan. In this article we look at the pros and cons of a 100% remortgage versus a secured loan.

If your home is more than a couple of years old you have most likely built up at least some equity on it. And if your home is more than 10 years old this equity is likely to be quite substantial. You can cash in on this equity if you wish to raise money for whatever reason you want. You can either remortgage to do this, or you can apply for a loan that is secured against your property. Each has its own advantages and disadvantages.

The chief benefit of a 100% remortgage is that it will most likely work out cheaper in the long run. Remortgages generally have lower interest rates than secured loans and you could even save money on your current mortgage by remortgaging. Many people find that they save over £1,000 a year by switching mortgage lender. Remortgages also offer the convenience of just having to make one monthly repayment.

However, they also have their drawbacks. The main disadvantage is that they can be expensive to set up. You will have to pay off your existing mortgage to remortgage and this can attract redemption penalties and exit fees. You will also face legal costs and property revaluation costs, and the whole process generally takes longer than it does to arrange a secured loan.

A secured loan, however, can be arranged much more quickly as you do not have to change your mortgage. You can borrow up to 125% of your home's value less any amount outstanding on your mortgage. This will give you more borrowing power but think carefully before you borrow more than the value of your home. Also, because you do not have to switch mortgage the costs associated with getting a secured loan are much lower. However, as mentioned, you can expect a higher interest rate so it may be the more expensive option in the long run.

If you do not need to raise a large amount of money you should consider a standard personal loan. These are generally available up to £25,000 and you do not risk losing your home if you miss repayments. While interest rates on these are higher than remortgages and secured loans, they are paid off over a shorter period of time. They are also much easier and cheaper to arrange than remortgages and secured loans.

If you are not sure whether a 100% remortgage or a secured loan is the best option for you, speak to an independent financial adviser. An adviser will assess your circumstances and help you make the right decision.