Taking out a secured loan, or remortgaging the property is a decision faced by many individuals looking to refinance their home to raise money. Which one is better for you is not always clear and depends on different considerations. An early payment penalty is typically the most significant factor and usually kicks in if you pay off your mortgage early.



Some mortgage companies have penalty clauses built into their contracts with as high as 8.5% penalty on the outstanding loan for early repayments. This is an up front cash payment which could well be much more than the total interest savings you may get from taking out a new mortgage rather than a secured loan.

The type of mortgage you currently have will have a bearing on whether these types of penalties apply. If, for example, you have a discount mortgage, with either a fixed or floating rate that is at a discount for the first three years then you are more than likely going to face a stiff penalty for early repayment. Bear in mind that some mortgages continue to impose a penalty even after the initial low rate period.

If you do not have a significant prepayment fee in your case it would make sense to consider the fees involved in a secured loan transaction. Crucially, it is important to note that the rate charged on a secured loan is likely to be much higher than the rate on your mortgage, but it is on a smaller amount of principle generally. This tends to make remortgaging a more attractive option, however there are other matters to consider.

Consider as well the full amount it will cost you to take out a loan will be comprised of more than just the interest due on the loan. There of amounts to be paid for the valuers, administrators, lawyers, bankers and potentially for the title and broker costs. Typically, these costs do not apply across the board, although generally speaking you will have to pay the broker and title fees, even for a secured loan.

Also remember that the remortgage is typically a much larger principal amount and so even if the rate on the mortgage is less than the rate on the secured loan, if it greater than your previous mortgage rate, you could end up paying much more in interest over time. You must look at your total borrowing costs, net present value, rather than simply the interest rates or your initial monthly outlays.

Also be sure to check the repayment terms for the different options you have to hand. You may find yourself locked in for longer than you are comfortable with, which could inhibit you from paying off the loan early if you have a cash lump sum available. Note that if you have had any recent credit difficulties, you may find it easier to take out a secured loan.

How much time you have to raise funds is also an important item to consider. Mortgages typically take at least several weeks to be approved, if not several months before the money actually makes it into your account. Secured loans can generally be paid out in as little as two weeks if you are prompt with your paperwork, so you will have to consider this in your decision making process.