What is the right option for you? A full re-mortgage with capital raising, a further advance, or a secured loan, otherwise known as a second-charge mortgage.
The following points should be taken into consideration:
- A first-charge mortgage is where high redemption penalties would apply.
- When remortgaging would result in a higher rate of interest on the existing mortgage balance.
- When taking a further advance through your existing lender, it would come at an uncompetitive rate.
- When further borrowing on your existing mortgage would mean switching from an interest-only mortgage to a repayment mortgage.
- To raise capital for business purposes or other property investments, often not available through first-charge mortgage lenders.
- If issues like an imperfect credit score have restricted your mortgage options.
- If you have failed to meet the additional borrowing criteria due to the lender’s maximum income multiple, most first-charge mortgage lenders will limit your borrowing to a multiple of 4.5 times your current income, whereas with secured loans, most lenders will consider a multiple of up to 6 times your current income.
Variable vs. fixed rate secured loans
Fixed-rate secured loans bring the assurance of an agreed-upon rate of interest that will not change, usually for a specific period. Unlike a variable rate of interest, if the rates increase, you will not be impacted by an increased cost of borrowing. However, likewise, if interest rates decrease, you will not benefit from the reduction in cost.
Interest rates can increase or decrease during the term of the loan, usually in accordance with Bank of England base rate adjustments; however, a variable interest rate may also be adjusted entirely at the lender’s discretion.
Both options can be cost-effective, and whichever you decide is the right option for you, it is essential to consider overall borrowing costs for the life of the loan, not only the initial affordability or the APR alone.