Choosing between a remortgage or a homeowner loan
Homeowner loans or remortgaging: what's better for home improvement projects?
If you’re considering a home improvement project, we look at which borrowing option could be right for you – a homeowner loan or remortgaging your house.
Whether it’s a new kitchen or conservatory, home improvement projects could be expensive. If you’re looking to borrow money to help make your renovation dreams a reality, you could either use a homeowner loan or remortgage your home.
Considering these key questions could help you decide which option is right for you:
What’s the difference between remortgaging and a homeowner loan?
Remortgaging means changing your mortgage deal and, if you’re looking for extra funds, taking out a larger mortgage. A homeowner loan means your mortgage stays put and you borrow a separate sum with a different loan provider.
To remortgage, you either move to a different lender or take out a new mortgage with your current lender. People usually do this to move to a cheaper interest rate and lower their monthly payments.
However, you can also remortgage to release extra funds. You can do this by borrowing more than you need to clear your remaining mortgage balance. For example, if you have £100,000 outstanding on your mortgage and you want £20,000 for home improvements, you’d need to find a mortgage lender willing to lend £120,000 – enough to cover both your remaining mortgage and any home improvement projects you have in mind.
A homeowner or secured loan could allow you to borrow similar amounts of money without finding a different mortgage deal. Depending on your eligibility, you could borrow over £20,000. Just like a mortgage, the loan is secured against your property – meaning that if you fall behind with your repayments, your home could be at risk of repossession.
If you remortgage, the loan will be consolidated within your mortgage repayments – whilst a secured loan will be separate to your existing mortgage repayments. And remember, both homeowner loans and remortgaging deals will be secured against your home.
What’s your current mortgage rate?
If you currently have an unbeatable mortgage interest rate, you might struggle to move your mortgage. For example, the property market might have changed and mortgage lenders might have increased their rates.
If that’s the case, it could be worthwhile remaining with your existing mortgage deal. You could consider a secured loan instead – and continue reaping the benefits from a low-interest mortgage.
However, if you think you could find cheaper mortgage rates elsewhere, you could benefit from remortgaging instead.
What about your mortgage terms?
Along with a low-interest rate, there might be other perks your current mortgage offers. For example, your mortgage might offer flexibility or payment holidays. If your mortgage has perks you benefit from, it may be worth considering a homeowner loan instead.
When does your mortgage deal end?
When it comes to fixed-rate mortgages, there’s always an end date. If your mortgage deal is coming to an end soon, it could be more convenient to tie your borrowing into a new mortgage.
However, if you’re currently repaying a fixed-rate mortgage and the end of the deal isn’t in sight, it could be easier to look for a secured loan instead. Closing your mortgage before the end of the fixed-rate deal can sometimes mean you end up paying fees.
What’s your credit score?
Your credit score also plays a role in whether you should remortgage or take out a homeowner loan.
If your credit score has fallen since you took out your current mortgage, you might struggle to switch to a better rate. Let’s say your credit score was excellent when you first bought your home, but you’ve since had trouble with your finances.
If that’s the case, the mortgages available to you might be more expensive – so it might make more sense to look at homeowner loans instead.
On the other hand, your credit score might have improved since you originally took out your mortgage. That means there may be more competitive mortgage rates available to you. In this case, remortgaging could be the better option, as you’d also benefit from one flat interest rate – instead of juggling two separate repayments.
Are there any fees and charges for switching mortgages?
If your fixed-rate has come to an end, you might decide to remortgage. However, many mortgages have costs for switching to a different lender before your fixed-rate period ends.
These are often called ‘early repayment fees’. If you switch mortgage providers before the term ends, the lender will miss out on your interest payments – so you may be charged a fee. Add in any arrangement and or legal fees and the cost of remortgaging could begin to creep up.
One advantage of homeowner loans compared to remortgaging is that you won’t need to pay any early repayment fees before you borrow the money.
So remortgage or homeowner loan?
If you’re at the end of your fixed rate deal and have a good credit score, remortgaging could be a good option for you – especially if there are no fees for switching deals. However, if you’re bound by high early repayment fees and you don’t have a good credit score, a homeowner loan could be a better option.
Before you commit to either option, it’s important to do your research. Consider any upfront fees you might need to pay and compare the total amount repayable for both options. You can do this by reviewing the lenders websites – so you can compare the monthly costs before you sign the dotted line.
At Evolution Money, we offer no-obligation quotes. That means you can carefully consider our homeowner loan offer before you get to work on that home improvement project.
Think carefully before securing debts against your home your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
