Which is better for getting money to make a home improvement - secured loan or remortgage?
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I need money to add a conservatory to my home in Bristol. What should I do to borrow against my home?
Richard
2 years ago
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
Hello Richard
a secured loan will nearly always be the most expensive solution. The main reason for this is that the second lender will be lower in the pecking order of repayment if you were to default on your mortgage payments and as the risk of loan 2 going unpaid increases, so does the rate.
you will usually get the cheapest deal by looking at the entire debt as one mortgage with one lender but even this has drawbacks.
for example before rates dropped through the floor i was able to secure many clients on lifetime base rate trackers where they pay only 0.5% above the bank of england base rate for the life of the mortgage. but what if that lender wont lend any more whether its for home improvements or any other reason?
well in that instance you wouldnt want to lose a really attractive deal for the sake of a smaller top up mortgage and this is when a secured or second charge loan can work out best because the overall cost of servicing your total debt will often be lower.
the lowest remortgage deals at the moment would still be at least double the rate described above.
another instance of taking the second charge is when your primary lender wont lend but you would incur a big penalty to move and the cost of the extra loan is still cheaper than paying a big penalty and moving.
your question is a prime example for why it makes sense to ask for and pay for the advice from someone that doesnt have a vested interest in you taking lender A over lender B but will put your needs first and demonstrate to you why the recommended option is the cheapest having weighed up all the feasible alternatives.
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a secured loan will nearly always be the most expensive solution. The main reason for this is that the second lender will be lower in the pecking order of repayment if you were to default on your mortgage payments and as the risk of loan 2 going unpaid increases, so does the rate.
you will usually get the cheapest deal by looking at the entire debt as one mortgage with one lender but even this has drawbacks.
for example before rates dropped through the floor i was able to secure many clients on lifetime base rate trackers where they pay only 0.5% above the bank of england base rate for the life of the mortgage. but what if that lender wont lend any more whether its for home improvements or any other reason?
well in that instance you wouldnt want to lose a really attractive deal for the sake of a smaller top up mortgage and this is when a secured or second charge loan can work out best because the overall cost of servicing your total debt will often be lower.
the lowest remortgage deals at the moment would still be at least double the rate described above.
another instance of taking the second charge is when your primary lender wont lend but you would incur a big penalty to move and the cost of the extra loan is still cheaper than paying a big penalty and moving.
your question is a prime example for why it makes sense to ask for and pay for the advice from someone that doesnt have a vested interest in you taking lender A over lender B but will put your needs first and demonstrate to you why the recommended option is the cheapest having weighed up all the feasible alternatives.
