I Want To Release Equity From My Home, What Are My Options?
There can be some general confusion for homeowners when considering a remortgage or a secured loan. We look to shed some light on the two different options through answering questions such as, which one is best for you? And which one will be most financially beneficial? In basic terms, remortgaging your home generally costs less as high charges are usually involved on secured loans.
Additionally, the latter take a second charge on your property so you must meet all the repayment terms to avoid the repossession of your home. Although, remortgaging sometimes is not a viable option for homeowners as the terms of their original mortgage have not yet expired. Therefore, in order to avoid early switch charges, a secured loan may be a sensible option. To establish which option is the best option for you though, it would be most beneficial to look at each option individually.
Let us start with remortgages. In todays market place, you need a maximum 90 percent loan to value (LTV) to get a remortgage deal. (Loan to Value is a measurement of the ratio of the amount of money borrowed against the total value of the property). For example, if a borrower wants GBP 130,000 to purchase a house worth GBP 150,000, THE LTV is calculated by dividing the first by the latter and the result converted into a percentage. In this case, the LTV would be 87 percent. Remortgaging, in brief, is the process of paying off your existing mortgage loan with the proceeds of a newly acquired mortgage loan.
The advantages to remortgaging property include that there is usually no set limit to how much can be borrowed. Furthermore they are a fantastic method of freeing up equity in your home to be used for property refurbishment or to consolidate outstanding debts. Most lenders in todays market do now attach early redemption charges (ERCs) to the mortgage though in order to protect themselves from lost earnings when borrowers remortgage.
Remortgages do carry some other fees too including admin and lender arrangement fees but most lenders will usually offer free valuation and legals. Remortgages are classed as first charge due to the legal paperwork which has to be completed by a conveyance specialist/solicitor. This can slow down the completion of the remortgage.
In contrast, Secured Loans only usually carry a lender arrangement fee, and only sometimes a broker fee, so the money can generally be obtained much quicker, in around 2 to 4 weeks. Some are even completed in as little as 10 days but this is largely dependent on whether the subject loan has a cooling off period attached. They are also great for providing a one off lump sum which can be used for home improvements or renovations or a family holiday etc.
However, secured loans have restrictions on how much a homeowner can borrow, usually between GBP 25,000 and GBP 100,000. The main downside of obtaining a secured loan is considered to be the fact that the repayments run alongside the existing mortgage and are not normally wrapped up within the same payment. This also means that usually the secured loan is obtained through a different lender to the mortgage. However you also need a lower LTV in order to get a secured loan, usually around 65 percent.
Nonetheless, there are a few similarities between remortgages and secured Loans. For example, both involve borrowing money over a longer period of time, usually between 5 and 25 years and both are secured on property so there is an equal risk of property repossession if repayment terms are not correctly met. Therefore, both require you to earn enough money to repay the loans and both need enough positive equity in the property to fit with the lenders criteria.
Lastly, remortgages are offered at a much lower rate than a secured loan so are considered a safer and more affordable form of finance than, say, unsecured loans.
As always it is advisable to speak to a professional expert when making any financial decisions, so speak to a professional when seeking any remortgage advice to ensure you get the best remortgage solution for your personal circumstances.
About the Author:
James writes for Just Remortgages the leading website in the UK dedicated to providing the latest remortgage rates, and best remortgage deals in the market.
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