Aldcroft:Burrows

Mortgage Services Limited

A secured loan differs from a personal loan, in that the lender has a legal charge over your home. If you default on the repayments then the lender has the right to enforce the sale of your home to repay the debt (after the mortgage, sometimes known as the ‘first charge’), unlike a personal loan.

Usually, the interest rate for a secured loan is lower than that of a personal loan, as the lender has more security by virtue of their legal charge.  Typically, though, the interest rate will still be higher than with a mainstream mortgage lender.  So, why would you choose a secured loan against a re-mortgage?

• 1.   The most common reason is when there would be a substantial redemption (early repayment) penalty on the current mortgage.  By providing additional borrowing, rather than repaying the original loan, the penalty can be avoided.  Note though, that the main lender usually has to give their permission, or consent, for the second charge.

• 2. A borrower’s credit rating may have changed since they took out the original mortgage, maybe following missed payments on other borrowing.  If they were to re-mortgage, then they may only be offered a sub-prime rate, meaning that the whole of the existing and the new borrowing would be on a higher rate than the current loan.  With the secured loan, however, only the additional borrowing will be on the higher rate.

• 3. Finally – speed. Typically, a secured loan will complete in 21 days, with 10-14 days not being uncommon, depending on whether there is a ‘cooling off’ period.  This is usually several weeks quicker than a re-mortgage.

So, an objective view of the total cost of borrowing is the best way to proceed.  Contact us to discuss your options further. We will provide professional, unbiased advice.

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