Should you go for a remortgage or loan?

When homeowners in the UK consider their financial options, two common choices are remortgaging or taking out a personal loan. Both can provide much-needed financial flexibility, but each comes with its own set of pros and cons.


We’ve asked Alex Burke, Mortgage and Protection Adviser to clarify the differences, to help you make an informed decision tailored to your unique situation.


Take it away Alex


If you have paid off a good chunk of your mortgage or the value of your house has gone up, you may have built up a lot of equity in your property. Remortgaging to release equity could be a way to access extra cash. This could be for home renovations, repaying short-term debts, or helping with your children’s education.

Below I’ve listed some pros and cons of remortgaging as well as the advantages and disadvantages of taking out a personal loan.


Pros of Remortgaging:


  1. Lower Interest Rates: One of the primary reasons to remortgage is to secure a lower interest rate. Interest rates are often lower for mortgages than for personal loans. This can reduce monthly payments and interest costs. 
  1. Access to Equity: Remortgaging can allow homeowners to release some of the equity built up in their home. This provides a lump sum of money for various expenses such as home improvements, debt consolidation, or other investments.
  1. Flexible Terms: It may be possible to extend or shorten the mortgage term. You can adjust your monthly payments to better suit your current financial situation. 
  1. Improved Deals: Over time, better mortgage deals may become available as credit scores improve or as market conditions change.

 Cons of Remortgaging:


  1. Fees and Costs: Remortgaging can sometimes come with various fees. This can include valuation fees, legal fees, and early repayment charges if still within a fixed-rate period of the current mortgage. 
  1. Time-consuming: The remortgaging process can be lengthy, involving paperwork, valuations, and legal checks. 
  1. Equity Risk: Accessing equity reduces the amount of ownership in the home, potentially putting homeowners at risk if property values fall. 
  1. Credit Implications: If the credit score has worsened since taking out the original mortgage, securing a better rate might not be possible.

 What is a Personal Loan?


A personal loan is an unsecured loan used for various purposes. Examples of when someone might use a personal loan includes consolidating debt, funding home improvements or covering unexpected expenses. Unlike a remortgage, personal loans are not secured against the home.

Pros of Personal Loans:


  1. Speed and Simplicity: Personal loans are generally quicker to arrange than remortgages, with less paperwork and fewer legal requirements. 
  1. No Risk to the Home: Since personal loans are unsecured, the home is not at risk if the loan is not repaid. 
  1. Fixed Terms: Personal loans often come with fixed interest rates and fixed repayment terms, making it easier to budget and plan finances. 
  1. Flexibility: Personal loans can be used for virtually any purpose without needing to justify them to a lender.

 Cons of Personal Loans:


  1. Higher Interest Rates: Interest rates on personal loans are typically higher than those on mortgages. This can lead to higher borrowing costs. 
  1. Shorter Repayment Periods: Personal loans usually have shorter repayment terms than mortgages, leading to higher monthly payments. 
  1. Credit Score Impact: The credit score will affect the terms and rates of the personal loan. Poor credit can result in high interest rates and less favourable terms. 
  1. Lower Borrowing Limits: Personal loans generally have lower borrowing limits compared to the equity that can be accessed through remortgaging.

Making the Right Choice


Deciding between remortgaging and taking out a personal loan depends on individual financial situations. For those looking to lower monthly payments, access large funds, and have significant equity in their home, remortgaging might be a better option. But if you need quick access to funds or a straightforward process, a personal loan might be more suitable.


Take the next step


Making the right financial decisions for you can be complex. We’re here to help you explore options, assess your financial health, and find the best solution for your needs.

Get in touch with our team today to discuss how remortgaging could benefit you and take the first step towards greater financial freedom.