Does A Secured Loan Affect Remortgaging? It may be possible to take out a new mortgage if you have taken out a second loan for your property. However, the second loan will have an impact on the lender’s decision. That’s because it affects whether the lender thinks you can afford to re-mortgage.
Whether you want to borrow more for your mortgage to pay off the second loan or take out a new mortgage and continue to pay the loan also plays a role.
What is a secured loan?
With a secured loan you can borrow with an asset as collateral. Also known as a homeowner’s loan when taken out against a real estate or mortgage. This type of loan may be more suitable for those with low credit scores who struggle to access financing. If you don’t pay with this type of loan, you risk having your property repossessed by the lender.
Remortgage, what does it mean?
In comparison, remortgaging a mortgage is usually a four to eight-week process to move your existing home to a new lender. This may be to get a better deal than your current lender can offer you on your mortgage.
How does a secured home loan work?
If you have a loan secured by you, the equity in your home, the amount you fully own, acts as collateral for the money you borrow. This is in addition to the original secured loan you pay off, which is your first mortgage.
You pay off the second loan separately from your first mortgage, but both mortgages are secured against one home.
The risk to you is that if you fall behind on one or both of the loans, the lender could repossess your home and sell it to pay off the balance. You can also take legal action to cover any shortfall. The first mortgage lender takes precedence over the second lender, so your mortgage is paid off first. The same applies if you sell your home.
Does A Secured Loan Affect Remortgaging?
Does a secured loan affect remortgaging? If you have already taken out a home loan, you may still be able to take out a mortgage. It can be a good option when the term of your mortgage ends and you have switched to a standard variable interest rate. In that case, a remortgage may be appropriate, because you can then switch for free.
You can choose to repay the loan by refinancing and borrowing more. If you want to eliminate the default and repossession risk of a secured loan, this could be a solution for you. However, it is important to note that your lender may want to see your finances. Your income and expenses along with the value and equity of your property. These factors determine how much you can borrow. By paying off the loan when refinancing, you only have to pay a lender once a month. However, you must ensure that you can afford the cost of your monthly payments, as they will likely be higher than they were before you took out a new mortgage.
Keep Loans Separate
If you can no longer borrow to pay off your secured loan, you can choose to keep the loan separate from your mortgage. In this case, some lenders may be less likely to re-pledge your property and the attached secured loan may affect the interest rate on your new mortgage. If you are looking for advice on refinancing a secured loan, talk to our team of expert advisors today for more information.
Can you remortgage with a secured loan?
Remortgaging with a secured loan on a home is possible, but the lender then takes this second debt into account and it may be that fewer options are available to you. Closing means entering into a new mortgage agreement, either with a new lender or with your current lender.
When you apply for a new mortgage, the lender will do an affordability test to see if you can pay the monthly payments. For example, your income, daily expenses and any existing debts that you repay will be looked at. The amount you can borrow and the interest you are offered also depend on how much of your home you own or the loan-to-value (LTV) ratio.
Lenders will also review your credit report to see, for example, if you have not paid any loans or if your credit history has deteriorated since your last mortgage offer. Your credit score can affect whether the lender will accept your re-mortgage application and the interest they charge.
Why remortgage if you have a secured loan?
You may want to refinance to save money on your mortgage interest. This could be when you’re nearing the end of your current fixed or low-cost mortgage contract and want to avoid moving to the lender’s standard variable rate (SVR). The SVR is usually higher than the introductory discount rates. Refinancing can also allow you to make other changes to better tailor your mortgage to your needs.
You may want to borrow more on your first mortgage to pay off the second loan so that you only pay off debt on your primary mortgage. If the value of your property has increased and you have more equity in your home over time, refinancing a mortgage can help unlock lower interest rates. And the remortgage rate may be lower than the interest you pay on the second loan, although the amount of interest you pay generally depends on how long it takes you to pay off your mortgage.
Keep in mind that if your financial circumstances have changed, such as a drop in income, this may affect the rates that are offered to you. The secured loan and all the other debts you also pay can also prevent you from getting the lowest rates.
How Does A Remortgage With A Secured Loan Work?
There are two main routes to consider when refinancing with a second loan.
Remortgage to borrow more and pay off the second loan
One option may be to borrow more from your mortgage to pay off the second secured loan. This would mean paying only to one lender, and possibly at a lower interest rate than what you pay on the second loan.
The amount you could borrow when you re-mortgage will depend on your income, affordability, creditworthiness, and how much equity you have in your property.
You can also consider other ways to pay off the loan instead of borrowing more on your mortgage.
Remortgaging and keeping the second loan separate
If you do not want to pay off the secured loan debt with a new mortgage, you can keep the second secured loan separately while you switch to another arrangement.
You need to find lenders that will accept remortgages if you have a second secured loan. Also, keep in mind that the effect of the second loan on your finances is factored in when the lender determines the affordability of the loan.
Switching to another fixed or variable rate mortgage with your current lender without changing anything else is known as a new product mortgage, rather than a new mortgage. It may not always mean the best rates, but it can be an easier option. With a mortgage for a new product, you would continue to pay off the second debt, because you no longer borrow to pay it off.
The remortgage process with a secured loan can be a little more complicated than a regular remortgage. For example, you may have to pay additional legal fees for paperwork between lenders and it may be a slightly longer process than a standard new mortgage.
Be Clear About The Bridging Costs
You want to consider your time when making a mortgage agreement. This is because if you leave an offer before the binding period ends, you may have to pay an early redemption fee. Your policy documents should state these charges, but if you’re unsure, ask your lender.
There may also be start-up costs for the new mortgage, such as administration and legal fees, so these additional costs should be taken into account when making your calculations.
As you can see, there are quite a few variables to consider. You can discuss your options with a mortgage advisor or broker. They can access more specialized lenders and help you find the best rates, but one thing to consider is that they may also charge a fee.