Loan or Remortgage To Raise Funds: What’s best?

You may be looking into remortgaging or getting a personal loan if you intend to borrow money to fund home improvements such as an extension, kitchen renovation, or planning a big event. Or maybe you are looking to consolidate debt or build and extension, either way it’s a great idea to understand what options are avaible to you when looking to raise funds.

This guide explores the options of getting a loan or remortgage to raise funds, focusing on the benefits and risks for each option.

Should I get a Loan or Remortgage?

Both a remortgage and a personal loan are effective ways of raising funds and each comes with its advantages and disadvantages. Although there are other ways to borrow money, the two main options to finance home improvements or perhaps to consolidate debts are either remortgaging or getting a secured loan.

1) Remortgaging

How does remortgaging work? Remortgaging is the process of getting a new mortgage to replace your existing mortgage which can result in the release of funds and shorter-term or lower monthly repayments.

2) Personal Loans

A personal 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. Personal loans can also be referred to as unsecured loans.

3) Secured Loans

Secured loans, in contrast to personal loans, necessitate the borrower to pledge an asset, such as property or a vehicle, as collateral. This added security can make a secured loan cheaper as a result of lower interest rates and a higher borrowing capacity, but carries the risk of losing the asset if the borrower defaults on repayments.

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

Is It Better To Get A Loan or Mortgage?

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.

Below we delve further into the advantages and disadvantages of remortgaging, getting a personal loan or a secured loan when raising funds.

Should I Remortgage to Raise Funds?

A remortgage can be a good option for several 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.

Our advisors will work out if a secured loan or remortgage works best for you.

Pros of Remortgaging

There are several advantages to remortgaging rather than getting a loan. Some of these advantages include:

1) Reduced Monthly Repayments

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

If you are considering debt consolidation this can mean the interest rates on mortgage deals are almost definitely going to be lower than the interest rates you are paying on personal loans or credit cards. This will result in lower monthly repayments overall. Reducing your monthly payments enables you to save money to take the strain off your monthly outgoings.

2) Access A Large Sum of Money

The process of remortgaging to a new mortgage provider 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 loan to value.

You can apply for an additional large sum that you raise funds for a home extension, a kitchen renovation, or several areas such as paying off and consolidating any debt.

Learn How To Remortgage to Release Equity

3) Pay off Your Mortgage Sooner

Remortgaging can reduce the term of your mortgage. This is because 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.

However, choosing to remortgage as a way to generate funds might seem counterproductive because it can lead to an increase in your monthly repayments. If higher payments aren’t feasible, the alternative would be to extend your mortgage term. While this could keep monthly payments manageable, it also means you’ll be paying off your mortgage for a longer period, ultimately resulting in higher interest costs over time.

Cons of Remortgaging

There are some disadvantages to remortgaging rather than getting a loan. Some of these disadvantages include:

1) Increases Overall Payment Period

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

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

2) Additional Fees

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

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.

If you remortgage away from your existing mortgage deal you may need to pay an early repayment charge. Talk to a mortgage broker before you decide the average early repayment charge on your current mortgage is likely to be in the region of 3%.

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 on whether it makes sense to borrow extra money and to help get the best rate and deal.

Our team of mortgage broker experts will help you find the best mortgage deal for you according to your situation and requirements. We have been helping homeowners remortgage advice for over 25 years and have received thousands of 5-star reviews.

Remortgage to a better rate

Whether you are looking to release equity or want to look at lower interest rates, 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.

Should I Get a Loan?

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

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

We have come across many examples that people will get started on home improvements with the use of personal loans due to needing the funds quickly. Although the interest rates are often lower on a personal loan the term is also shorter leading to higher monthly repayments overall. Once the home improvements are completed the property may have increased in value giving the option to remortgage to a lower interest rate and lower monthly mortgage repayments as the loan-to-value is now lower.

Pros of a Loan

When applying for a secured loan you will usually find it a relatively quick process. Banks tend to make their decision as quickly in 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.

1. Quick Debt Payoff: Personal Loans or secured loans are a short-term method of financing, due to this nature, repayments are also over a short period. This means that you can use the loan and pay it back in as little as a year which will benefit some people.
2. Property isn’t at Risk: Taking out a personal loan is a relatively simple process and doesn’t require any collateral. In contrast, remortgaging adds to your mortgage debt and puts your home at risk of repossession if you fail to make the repayments.

Cons of a Loan

There are some disadvantages to getting a loan rather than getting a remortgage. Some of these disadvantages include:

1. High Monthly Repayments: Personal loans are taken out over a relatively short period, hence the monthly repayments are also over a short time. This results in the monthly 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. It’s worth noting that a secured loan can offer you a lower interest than a personal loan. We often get asked does a secured loan affects remortgaging. It’s been our experience and we have many examples that a secured loan can stop or make it more difficult for you to remortgage in the future.
2. Maximum Value: The loan value is dependent on several factors such as credit history, occupation, and situation. Despite the value, you can borrow varying in value, a loan results in a smaller amount of capital being available when compared with remortgaging.
3. Credit Score Dependant: Personal loans are credit score dependent, therefore, if you have a relatively poor credit score it is unlikely that the option of either secured loans or personal loans will be open to you. To get a good interest rate will rely on your having a decent credit score

Related reading: If you choose to remortgage then read: Remortgage Same Lender: A Comprehensive Decision-Making Guide

Should I Get a Home Improvement Loan or Remortgage?

Selecting between home improvement loans and remortgaging for financing home improvements depends on many factors, including your current financial standing, project cost, and long-term goals. Here is a brief breakdown to help you make your decision:

Home Improvement Loan:

There are two options when considering a loan for home improvements, a secured loan (secured against your property or another high-value asset) and an unsecured loan.

1) Unsecured Personal Loan

A personal loan can be a great way to fund home improvements, however, it is important to consider the advantages and disadvantages of this loan type:

Advantages:

• No Collateral Required: Offers less risk to your property and increases flexibility in loan applications.
• Fixed Interest Rates: Budgeting is made easier with rates that remain constant.
• Quick Funding: Approval and funding can be rapid, sometimes within days.
• Doesn’t Affect Mortgage Deal: Existing mortgage arrangements are not altered.

Disadvantages:

• Higher Interest Rates: Tend to be higher than remortgaging, especially for large loans.
• Shorter Repayment Terms: Loans typically must be repaid more swiftly, resulting in higher monthly payments.

2) Secured Loan:

A secured loan is similar to a mortgage in ways, it is a loan that is usually secured against your property or sometimes another asset. Secured loans can be a great way to fund home improvements, however, it is important to consider the advantages and disadvantages of a secured loan:

Advantages:

• Lower Interest Rates: Since the loan is secured, lenders usually offer lower interest rates compared to unsecured loans.
• Higher Loan Amounts: You may be able to borrow more money based on the equity available in your property.
• Longer Repayment Terms: Allows for longer repayment periods, potentially leading to lower monthly payments.

Disadvantages:

• Your Asset Is at Risk: If you fail to keep up with repayments, the mortgage lender can take action to recover their money, which might include repossessing your home.
• Fees and Charges: There might be additional fees for arranging a secured loan, as well as early repayment charges.

Remortgaging:

When you remortgage, you have the choice of increasing your loan to value and releasing some equity from your property. Remortgaging involves securing a new mortgage deal on your property, potentially increasing its size to cover the costs of improvements. Read below to learn more or read our guide on Remortgage for Home Improvements

Advantages:

• Low Interest Rates: Generally offer lower rates compared to personal loans.
• Longer Repayment Period: Costs can be spread out over the life of the mortgage, potentially leading to lower monthly payments.
• Increases Property Value: It is ideal if renovations significantly boost home value.

Disadvantages:

• Your Home Is at Risk: Non-payment can jeopardize your property.
• Fees and Charges: These may include various fees such as valuation, legal fees, and early repayment charges on the existing mortgage.
• Longer Debt Term: Extending costs over a longer period could mean more interest accumulates.

Considerations:

• Equity: Higher equity often leads to better remortgaging rates.
• Interest Rates: It’s essential to compare current mortgage rates to those available for a home improvement loan.
• Financial Stability: Assess your job security and your capability to meet increased payment schedules.
• Project Costs: Larger projects may benefit from the lower interest rates of remortgaging, while smaller projects might be better suited to personal loans.
• Long-Term Plans: If selling your home soon, extending your mortgage may not be ideal. However, improvements could enhance its value for a future sale.

Consulting with a financial advisor or mortgage broker is crucial to explore all options suited to your specific situation and goals. They can offer tailored advice based on your unique financial scenario and objectives.

Get help with your Fee-Free Remortgage from YesCanDo

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

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