17th February 2023

Is a Remortgage Better Than a Loan?

If you need to make a large purchase, you may be wondering "is a remortgage better than a loan?" Homeowners often need extra funding for various reasons such as home improvements, debt consolidation, emergencies, and more. The two most common options are remortgaging or taking out a personal loan.

Advantages of Remortgaging

Remortgaging allows homeowners to access cash through either refinancing their existing mortgage or taking out a new mortgage at a better rate.

Taking out a new mortgage with more favourable terms could result in a lower interest rate or lower monthly repayment. This is particularly useful if your existing mortgage rate is higher than current deals on the market.

You can also remortgage to consolidate other debts into one payment. Instead of making multiple payments across different lenders every month, you only have to make one manageable repayment to cover everything at once. You should always seek specialist advice from your mortgage broker if you want to remortgage to consolidate debt. This is because, although the monthly payment may be lower with consolidating other debts, it may be the case that the overall amount you pay will be higher due to paying interest over a potentially longer term.

Therefore, please think carefully before securing other debts on your home or property.

If you have enough equity in your home, remortgaging can provide access to a large sum of money in an emergency. For example, if you need cash for a major home improvement project but don’t have the funds upfront, taking out a new mortgage may allow you to borrow enough money quickly and easily without taking out a potentially more costly personal loan.

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Advantages of Loans

Personal loans are unsecured loans offered by banks or other lenders that can be used for a variety of purposes from buying cars to paying for major events. Personal loans don’t require collateral, such as your home or car, so they tend to have a simpler and quicker application process than remortgaging.

Monthly repayments on a loan tend to be higher because of the shorter terms. However, depending on your credit score, you may qualify for a lower rate. Be aware that the advertised rate for a loan is often higher than the actual rate you receive if your credit rating is not excellent.

Most loan providers can make quick decisions, so if you need to borrow money in a hurry, this could be the best option for you. Additionally, because the repayment period is relatively short, the debt is paid off much quicker than a remortgage. Finally, with a personal loan, your property isn't at risk so there is no risk of repossession.

Disadvantages of Remortgaging

The downside is that repaying over a longer period will usually increase the overall repayment amount due because you’ll be charged interest for longer. Because of this, a remortgage could end up being more expensive overall than your existing mortgage - even if the monthly payments are lower.

You also need to have sufficient equity in your property for remortgaging to be an option, so it might not be suitable if your home has dropped in value since you took out the original loan. Additionally, remortgaging often comes with additional fees such as arrangement costs and early repayment charges which need to be taken into account before making any decisions.

If you’re planning on moving soon and don’t intend on staying in your current property for long enough for remortgaging to become cost-effective then it probably isn’t worth doing either – as any savings made on lower payments will likely be offset by upfront charges anyway.

Bear in mind that debt secured against your home carries more risk than unsecured debt because defaulting on any repayments due could result in the repossession of your home.

Disadvantages of Loans

While there are many advantages to taking out a personal loan, there are also some drawbacks.

The shorter repayment term usually means higher monthly payments, and the interest rate is also often higher for personal loans than mortgages. If affordability is an issue for you then a loan might not be the right choice. Failure to make repayments could have serious consequences for your credit rating, so it’s important to ensure you can comfortably meet the monthly payments before committing to any loan.

You'll also need to consider how much money you need to borrow. Most lenders only offer up to around £35,000 in personal loans. If you need more than that then a loan might not be a viable option.

If you’re looking to use a loan to consolidate other debts, the interest rate may be higher than it would be on the original debt. This means you could end up paying more overall and take longer to pay off the debt.

Is a Remortgage Better Than A Loan?

When comparing remortgaging and personal loans it’s important to consider all factors such as costs associated with each option (interest rates & fees), qualifications needed to apply (credit scores & income level), best uses (long-term investments vs short-term needs), and more. The answer to the question "is a remortgage better than a loan" isn't necessarily straightforward.

Remortgaging allows you to take advantage of changes in the mortgage market like lower interest rates or different payment options. On the other hand, personal loans may be easier to obtain with no need to change their existing mortgage terms.

Remember that missed payments on either option can damage your credit score, so always make sure that you're able to keep up with repayments before signing on the dotted line.

Remortgaging should not be taken lightly and each person's unique situation should be carefully considered before deciding on this option. If you are considering a remortgage, speak to an independent mortgage broker like WIS as soon as possible to ensure that you are getting the right deal for your circumstances. We cover the whole of the UK so you can be sure to find the right deal for your specific situation and we can also help with your insurance, wealth, and pension needs.

You can use our mortgage calculator to identify if a remortgage could be a good option for you or contact us for some free advice.

As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments.

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