This depends on your personal circumstances. Remortgages and home equity loans are similar in several ways. Both are loans that are secured on your property and in both cases the lender will take a legal ‘charge’ over your home as security. As they have this collateral, lenders can offer lower rates on home equity loans and remortgages than they do on other sorts of borrowing such as credit cards and unsecured loans.
In some ways a remortgage can be better than a home equity loan. It is often possible to arrange a remortgage at a lower interest rate than a secured loan and it also means that you benefit from a great rate on your main mortgage as well as your additional borrowing.
However, there are also many situations in which a home equity loan is preferable to a remortgage.
Firstly, remortgages are often limited to a maximum of 60-70 per cent of the value of your home. If you wanted to borrow more than this – perhaps to consolidate existing debts or to undertake improvements to your home – then a secured loan is likely to be more suitable. You can generally borrow a higher proportion of your property’s value by using a secured loan.
Secondly, there are lots of reasons why you might want to borrow additional cash without switching your main mortgage from your current lender. You might be on an excellent interest rate on your main mortgage which you don’t want to lose. Or, you may have significant ‘early repayment charges’ for coming out of your current mortgage deal which you don’t want to pay.
Thirdly, home equity loans are often easier to arrange than remortgages. Remortgage lenders will often apply strict criteria in terms of affordability or credit scoring. This means that it can be difficult to arrange a remortgage if you are self-employed or part of your income is made up of commission or bonuses. Similarly, remortgaging can be difficult if you have bad credit such as County Court Judgments or defaults.
Lenders welcome applications from self-employed borrowers or those with previous credit problems although you may find that you pay a slightly higher interest rate on your loan.
Finally, remortgages can often cost several hundred pounds to arrange. It is not unusual to pay arrangement fees, valuation charges and legal fees for switching your home loan from one bank or building society to another. Secured loans typically have lower costs and lower early repayment charges if you want to repay the loan early.
To access the money tied in your home equity and get a great loan rate, book an appointment with the Mortgage Genie.