Does a Secured Loan Affect Remortgaging?

Written By: Hannah O'Neill
Published: December 5, 2023

In a word yes; a secured loan on your property can affect your ability to remortgage. It doesn’t mean you can’t remortgage, but depending on the size of the secured loan, it could limit your remortgage options. In some cases, an outstanding large secured loan may make it difficult or impossible to remortgage at a competitive interest rate. You may need to make a larger deposit or accept a higher interest rate.

Let’s explore this in more depth.

What is remortgage?

Remortgaging means changing your existing mortgage to a new deal with either your current lender or a different one. People do this to get a better interest rate, lower monthly repayments, or borrow more money against their property’s value.

What is a secured loan?

A secured loan, like a homeowner loan, is where you use the equity you have in your property, e.g, the part of your home you fully own – as a guarantee for the money you borrow. This comes on top of your primary mortgage, which is the original loan you took out to buy your home.

This additional secured loan, often referred to as a second charge mortgage, is repaid separately from your first mortgage. However, both loans are linked to your home as security, which means if you don’t pay back the loan, the lender could take possession of your property.

How does remortgaging with a secured loan work?

So, when you’re thinking about remortgaging, having a secured loan is an important thing to consider. Not only do lenders look at your income and credit score, but also all the debts (including secured loans) against your property to determine how much equity you have, and what your loan-to-value ratio is to judge how financially stable you are and if you can afford the new mortgage monthly repayments. This evaluation affects the choices and terms you get in the remortgaging process.

Impact of secured loans on your remortgaging options

If you have a large secured loan, it might affect your remortgage options, including the interest rates offered to you.

Secured loans and credit ratings

Your credit rating is a score that tells lenders how well you handle your finances. Having a secured loan and making regular payments on it can actually be good for your credit rating.

But, if you miss payments or struggle with your secured loan, it could lower your credit score. A lower credit score may limit your remortgage options or lead to higher interest rates.

Secured loans and loan-to-value ratios

The loan-to-value (LTV) ratio is a key factor in remortgaging. It’s the percentage of your property’s value that you’re borrowing through your mortgage and secured loans.

If you have a large secured loan, this will reduce the amount of equity you have in your home. Equity is the difference between the value of your property and the amount you owe on your mortgage. Lenders typically prefer to lend to borrowers with a higher equity stake, as this reduces their risk of default.

A high LTV ratio, meaning you owe a lot compared to the value of your property, can make lenders cautious. They might offer you higher interest rates or less favourable terms, as a high LTV ratio is seen as a higher risk.

Can you remortgage with a secured loan?

Yes, you can remortgage with an existing secured loan, BUT there are steps you can take to improve your chances of getting a good deal:

  • Review your financial position: Take a close look at your current debts, including your secured loan debt and any other financial obligations you have. Understanding your complete financial picture helps in making informed decisions about remortgaging.
  • Improve your credit score: Make sure you’re making all loan payments on time. Paying down debts, especially high-interest debts, can positively impact your credit score, making you more attractive to lenders.
  • Consider the timing: If your secured loan is close to being fully paid, you might want to wait until it’s cleared before remortgageing. This can simplify your financial situation and possibly lead to better remortgaging terms.
  • Seek expert advice: Remortgaging can be complex, especially with a secured loan in the mix. It’s wise to seek advice from financial experts who can offer tailored guidance based on your specific situation.

The challenges of remortgaging with a secured loan

Remortgaging with a secured loan can present some challenges, so it’s important to be aware of the potential risks:

  • Increased debt levels: Having a secured loan may mean you’re already carrying a significant amount of debt. Adding a remortgage to this can increase your financial burden, so it’s important to assess whether you can comfortably manage the additional repayments.
  • Higher interest rates: As mentioned earlier, a higher LTV ratio can lead to a higher interest rate. This can make your monthly payments more expensive and reduce the amount of equity you can build.
  • Stricter appraisals: Lenders may be more likely to require a full appraisal of your property if you have a secured loan. This can add to the cost of remortgaging.
  • Limited options: Lenders may be more cautious when offering mortgages to borrowers with secured loans. This can limit your choice of lenders and products.
  • Property value fluctuations: If the value of your property has changed since you took out your secured loan, this can affect your loan-to-value ratio, which in turn impacts your remortgaging options.

Tips for remortgaging with a secured loan

If you have a secured loan and you are considering remortgaging, here are a few tips:

  • Improve your credit score: A good credit score can help you qualify for a better interest rate, which can offset the impact of your secured loan. To help improve your credit score, pay your bills on time and maintain a low debt-to-income ratio.
  • Make a larger deposit: A larger deposit can reduce the amount you need to borrow, which can make you a more attractive borrower to lenders.
  • Shop around: Compare rates from different lenders to find the best mortgage deal for you.
  • Consider consolidating your debts: If you have multiple debts, try to consolidate them into a single loan with a lower interest rate. This can free up more cash and make it easier to qualify for a remortgage.
  • Get professional advice: Work with a specialist finance mortgage broker who can give you personalised advice and help you navigate the remortgaging process effectively.

Believe Money: Your partner in remortgaging with a secured loan

At Believe Money, we understand the complexities of remortgaging with a secured loan. As a leading specialist finance broker, we specialise in helping homeowners navigate through their remortgage process effectively. Our expertise lies in connecting you with the right remortgage deals that suit your unique financial situation.

Our extensive network includes specialist secured loan providers, finding you competitive interest rates or accommodating specific financial needs. But we can also find a lender who’s willing to work with your circumstances, offering remortgage solutions that align with your financial situation.

Interested in exploring your remortgage options? Contact Believe Money today. Let’s discuss how we can assist you in securing the best possible remortgage deal for your home.

About the Author

Hannah O'Neill

Hannah O'Neill

Hannah O'Neill is a leading financial expert with over 10 years of experience in credit and loans. She is helping people achieve their financial goals based in the United Kingdom. She has been featured in numerous media outlets. Her articles offer practical advice on how to improve your credit score, get the best possible loan rates, and manage your debt wisely.

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