Secured Loans vs Remortgages: Which is best for me?

Homeowner Secured Loans Guide - Page 6 of 7:

Here we'll explore Secured Loans and another way of raising finance - the remortgage, and discuss when each of these two borrowing types are the most appropriate solution.

When borrowing money, using the security of your home can not only provide flexibility, but it is generally the cheapest way of raising additional funds, and the least expensive of all secured loans is the first mortgage. Consequently, many homeowners therefore tend to consider that a remortgage will usually be the most competitive route. That's true in many instances, but certainly not all.

So let's take a look at the occasions when raising additional finance would be better directed through a Homeowner Secured Loan:

Let's assume that the amount you wanted to raise was (say) £7,500, and because of a recent CCJ awarded against you, neither your present mortgage lender, nor an unsecured lender would consider providing you with funding.

It would be imprudent to arrange a remortgage because of the following reasons:

Costs and Fees involved:
- The costs involved in arranging a remortgage, such as valuation fees, lender's arrangement fees, solicitors costs and a broker fee, compared with amount of funding required would be wholly disproportionate.
- For this reason alone, a secured loan would make much better financial sense.
Disturbing a better rate that is currently being enjoyed on the bulk of the borrowings:
- The customer is trying to raise £7,500.
- If the funds were to be raised by means of a remortgage, it would be necessary to convert all the present borrowings on the first mortgage to a much higher rate. So for example, let's say a customer's home is worth £180,000 and has a 5-year fixed rate mortgage at 4.99% with a conventional lender in the sum of £125,000.
- It would be sheer folly to consider replacing the £125,000 plus raising £7,500, plus the remortgaging costs of say £2,500, all at a much higher (sub-prime) rate of interest at 7.59% variable due to the fact that the customer has recently acquired a CCJ.
- Thus, if the additional funds of £7,500 were to be raised by a remortgage, it would cost the customer tens of thousands of pounds in additional fees and interest charges.
- It would be much more prudent to arrange a secured loan, and leave the existing, and much more competitive mortgage in place.
There may be Early Repayment Charges (ERC's) involved with a Remortgage:
- If the customer is currently enjoying a preferential interest rate, as in our example at 4.99% fixed for 5-years; early settlement of this mortgage by remortgaging could well involve the payment of an Early Repayment Charges (ERC), which depending on the contractual mortgage terms, is likely in our case to run into thousands of pounds!
- The arrangement of a straightforward secured loan of £7500 would avoid the necessity of incurring ERC's, as the mortgage would remain undisturbed.
A shorter repayment period is required:
- A customer may only want to borrow the additional funds of £7,500 over a short period, say for example 5-years, as the purpose of use is to buy a secondhand motor vehicle.
- To add that, together with the costs involved in arranging a remortgage, over the remaining term of the mortgage would not make economic sense, especially if the mortgage term had 23 years to run.
- The interest and setting up costs spread over this period would be several times greater than those incurred with a secured loan transaction of £7,500 over a 5 year term.
- Consider also that the vehicle would be paid for in five years, where as with a remortgage, the customer would still be paying for it for 23 years, long after the vehicle has ended up in the local scrap yard!

Well, that wraps up our look at the Homeowner Secured Loan vs the Remortgage, we hope it's given you some clarity as to which may be the most appropriate solution for your borrowings needs. Don't forget our professionally qualified advisors will be delighted to assess your needs, requirements, circumstances and aspirations and come up with a recommendation and advice that's appropriate to you.

We're coming to the end of our Guide now, on the final page we'll take a look at how Shire Direct can help if you require a Secured Loan.

NEXT: Secured Loan Information and Help ›

Enquire Online now, or call us today 08000 282 281 - our freephone lines are open 8am-10pm everyday! We'd love to hear from you!

Mortgages/Remortgages: The overall cost for comparison is 9.8% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. Most customers are likely to receive a lower rate or the same rate as our overall cost for comparison rate - learn more about APR.

There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances. For non-conforming cases (where case research and processing may be more complex due to adverse credit or unusual circumstances), a fee may be charged of up to 3% of the amount advanced, typically £1,995.

Homeowner Loans: Rates from 8.9% APR variable, but typically 13.9% APR variable. Most customers are likely to receive a lower rate or the same rate as our typical variable rate - learn more about APR. Shire Direct also has a range of non-conforming loan plans with rates up to 19.9% APR. These plans are designed to help those who may have a more difficult credit history, including CCJ's and credit arrears, IVA and bankruptcy problems.
A broker fee of between 0% and 10% of the loan advance may be charged for arranging a secured loan.
All loans subject to status and secured on property.
The actual rate available will depend upon your circumstances. Written quotations on request.

THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Adding existing debt to your mortgage will increase the repayment term and overall cost.

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Shire Direct and Shire Direct Mortgages are trading styles of Shire Processing Centre Limited which is
Authorised and regulated by the Financial Services Authority in respect of regulated mortgage products and general insurances.
Registered No: 302389. Commercial funding and Secured Loans are not regulated by the FSA.
Licensed Credit Brokers. Consumer Credit Licence Number: 349999.

Shire Processing Centre Limited is registered under the provisions of the Data Protection Act by the Information Commissioners Office: Registration No: Z6795249. Registered in England & Wales. Company number: 2732202. Telephone calls may be recorded for training, monitoring and security purposes. All applicants must be aged 18-years or over.