Loan or Remortgage?

loan or remortgage

You may be looking into remortgaging or getting a loan if you are intending on conducting some home improvements such as an extension, kitchen renovation or planning a big event.

Both of these options are effective ways of generating funds and each come with their own advantages and disadvantages. Although there are other ways of generating funds, the two main options in order to finance home improvements or significant events are either remortgaging or getting a loan.

What is Remortgaging?

Remortgaging is the process of getting a new mortgage to replace your existing one which can result in the release of funds, shorter-term or lower monthly repayments.

What is a Loan?

A loan is a sum of money that is lent from a bank to the borrower and in return, the borrower pays it back in instalments with interest.

The option that is best for you will depend on your situation, circumstances and requirements along with the different interest rates available. Below we will outline the pros and cons of each of these funding methods, so you can make an informed decision.

Why Should I Remortgage?

Remortgaging can be a good option for a number of different homeowners for a range of reasons. Remortgaging can result in getting a lower interest rate than your current mortgage, lower monthly repayments, a change of mortgage term or increasing the amount you can borrow.

Remortgaging is a long-term method of financing but can be used to raise substantial funds.

Pros of Remortgaging

Reduced Monthly Payments

Once the initial introductory offer period with a fixed rate is over with your current mortgage, your interest rate will increase. By remortgaging, you can change to a mortgage with a lower interest rate than your current one.

This will result in lower monthly payments. Reducing your monthly payments enables you to invest in home renovations or simply use the money elsewhere for holidays or investments.

Access Large Sum

The process of remortgaging can result in the freeing up of funds. This is because you can use the equity that you have built up in your home to put towards a new mortgage with a lower LTV.

You can apply for an additional large sum that you can use to fund a kitchen renovation, extension or a number of areas such as paying off and consolidating any debt.

Pay off Your Mortgage Sooner

Remortgaging can reduce the term of your mortgage. This is due to the fact that you own a higher proportion of the house than when you initially bought it, or the value of the house has increased. This can be further completed by increasing your monthly payments if you can afford it.

Reducing the term of your mortgage, even by five years, can make a substantial difference in the total cost of your mortgage and save money in the long run.

Cons of Remortgaging

Increases Overall Payment Period

If you remortgage to release funds for home improvements, this will result in increasing the term of your mortgage in order to borrow the money necessary for the improvements.

Essentially, you are using the value of the house as collateral for a loan in order to gain funds.

Additional Fees

There are an array of fees that can be incurred when remortgaging. These depend on whether you remain with your current lender or change to a new one.

In order to remortgage with a new lender, you will need to go through the entire mortgage approval process which includes lots of paperwork. This is because you will be treated as a new customer when applying for a remortgage with a different lender.

How a Mortgage Broker Can Help you Remortgage

At YesCanDo Money, we are experienced mortgage brokers with a team of mortgage professionals here to help you. We provide an array of expertise to our customers to help them get the best deal for them.

Our team of mortgage broker experts will help you find the best deal for you according to your situation and requirements. We have been helping homeowners remortgage for years and have received hundreds of 5-star reviews.

REMORTGAGE TO A BETTER RATE

Whether you are looking to release equity or get a better rate, we can help. YesCanDo mortgage advisors do it all for you! The advice, the application, all the paperwork, the bank and solicitor chasing, and take away the stress. Plus we’re fee-free.

Why Should I Get a Loan?

Getting a personal loan is the other main option when considering completing home improvements or extensions.

Loans can be a good option for a number of people due to the short time it takes to get a decision on the amount that you can borrow and not having to have any collateral.

Pros of a Loan

Quick Decision Applying for a loan is a relatively quick process. Banks tend to make their decision as quick as a matter of days, whereas remortgage applications can take weeks or even months.

This can be important if there is a timely nature to your need for funds such as a family event.

Quick Debt Payoff

Loans are a short-term method of financing, due to this nature, repayments are also over a short period of time. This means that you can use the loan and pay it back in as little as a year which will benefit some people.

Property isn’t at Risk

Taking out a loan is a relatively simple process and doesn’t require any collateral. In contrast with remortgaging which puts your home at risk of repossession if you fail to make the repayments.

Cons of a Loan

High Monthly Repayments

Loans are taken out over a relatively short period of time, hence the repayments are also over a short time.

This results in the repayments being relatively high. Loans also have a high-interest rate, and hence the repayments are also steep. If any of these payments are missed, then this can result in damages to your credit history and score.

Maximum Value

Loan value is dependent on a number of factors such as credit history, occupation and situation.

Despite the value you are able to borrow varying in value, a loan results in a smaller amount of capital being available when compared with remortgaging.

Credit Score Dependant

Loans are credit score dependent, therefore, if you have a relatively poor credit score you are unlikely to be able to get a loan.

This could be due to an extremely high interest rate or simply being declined by the bank.

Which Option is Best For You?

There are clear discrepancies between taking out a loan or remortgaging your house. The table below shows the clear differences between the two and should assist you in deciding which is the right option for you.

. Remortgaging Loan
Interest Rates 1.1 - 2% 2.5% +
Term 20 - 30 Years 1 - 10 Years
Amount Up to £1m Up to £25,000
Fees Up to £1,000 Up to £25,000
Repayments Failure to pay can lead to your home being repossessed and early exit fees. Late or missed repayments result in extra interest and impacts on your credit

A Fee-Free Remortgage With YesCanDo

Here at YesCanDo, our expert team of remortgage advisers will search the entire market to find the best value deal for your remortgage.

They’ll closely manage your remortgage application and handle all the required paperwork, while liaising with all relevant parties to save you time. The best part? Our service is FEE-FREE.

Get in touch with us today to learn more about how we can help you source the best remortgage possible.#

Related reading:

How long does a remortgage take?

What does remortgage mean?

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Steve Roberts
Steve Roberts

Stephen Roberts MAQ is the founder of YesCanDo Money, Hampshire's largest no-fee mortgage brokers. With over 30 years of mortgage experience, he has advised and helped thousands of First-time buyers buy their first home and home movers buy their dream home. Speak to a mortgage expert today by completing our contact form:

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