Is A Remortgage Or A Secured Loan Best For Debt Consolidation?

by: Liz Moir

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Date: Wed, 28 Jul 2010 Time: 9:31 PM - 0 comments

Secured loans and remortgages are names known to many, without these people often understanding what they in fact are.

Remortgages and secured loans both require an asset which in this case is property.

However, so saying, both can be secured on a second home, a holiday home, or even on a buy to let property.

Not all lenders do lend on anything other than the main residence of the client, and there are differernt equity margins depending on the security offered.

The actual security needed is based on the equity that is available on property, and equity is the difference between the property value and the balance of the mortgage.

For example, if a property is worth 250,000 and the outstanding mortgage is 150,000, the equity would be 100,000.

Currently, secured loans are available up to 75% for self employed people, and 85% if the applicant is in employment.

Remortgages are available up to 90% LTV, at least from some providers, while other providers limit the LTV to 85%.

There are different equity margins depending on the reason for the remortgage.

Many limit the loan to value to 75%, if the funds are to be used for debt consolidation.

Other lenders. such as the Abbey, only allow one third of the remortgage amount to be used for debt consolidatiion with a maximum sum of 30,000 allowed for this purpose.

Secured loans are often preferable, if the money is needed for debt consolidation.

Remortgages are the moving from one mortgage provider to a new one in order to achieve a lower repayment each month.

At other times, additional funds are required for use as debt consolidation or many other purposes.

Therefore,remortgages are a first charge on the property and are registered as such at the Land Registry.

Secured loans, on the other hand, are totally stand alone homeowner loans that do not interfere with the first mortgage, and are ranked behind the first mortgage and registered as a second charge at the Land Registry.

Both remortgages and secured loans can be used for almost any reason, and they are both low cost ways of raising money for a holiday,to buy a car, a caravan, a motor home,etc.

They are also normally the best methods of paying for home improvements, as their rates of from less than 2% for a remortgage, and about 9% for a homeowner loan, are much less expensive than arranging a loan from the home improvement company whose rates of interest are normally around 25%

This is just a small sample of the uses for these two home loans, and also about what these finance products in fact are.