This article is for general information and guidance only. It is not financial advice and should not be relied on as a personal recommendation. If you are unsure whether a financial product is right for you, you should seek independent financial advice.
If you have a secured loan, you may be wondering whether it could affect your mortgage or your ability to remortgage. In this article, we are referring to a secured loan that is secured against your home. This type of secured loan is also sometimes known as a second charge mortgage or homeowner loan.
Having a secured loan does not automatically mean you cannot remortgage. However, it may affect how a lender assesses your application. The impact could depend on your financial circumstances, the amount you owe and the lender’s own criteria.
In this guide, we’ll cover:
- Whether having a secured loan could affect a remortgage application
- How a secured loan works alongside your mortgage
- What could happen to your secured loan when you remortgage
What is a secured loan?
A secured loan is borrowing that is secured against an asset you own. This article focuses on secured loans that are secured against your home. These are also known as second charge mortgages or homeowner loans.
A secured loan is separate from your first charge mortgage. It provides additional borrowing while your existing mortgage remains in place.
If you take out a secured loan, you’ll keep making your usual mortgage payments, while also repaying the secured loan in monthly instalments with interest.
Your home is used as security for the loan. If you fall behind on repayments, this could lead to fees, damage to your credit score or further action from the lender. If you do not keep up with your repayments, your home could ultimately be repossessed.
You can find out more about secured loans in our blog: How does a secured loan work?
Can you remortgage with a secured loan?
Remortgaging means replacing your existing mortgage with a new mortgage. This could be with your current lender or a different lender.
You may be able to remortgage with a secured loan. However, having additional borrowing secured against your home could affect your application.
When you apply to remortgage, the new mortgage lender will consider your existing secured loan as part of your application. This could include the amount you owe and your monthly repayments.
The lender will compare your circumstances against their own lending criteria. This could include factors such as:
- Your income and outgoings
- Your credit history
- Your total debt
- The amount of equity available in your property
- The amount you want to borrow
- The terms of your existing mortgage
Your loan to value (LTV) may also be considered. This compares the amount you owe for all the loans secured against your property with the overall value of your property. A high LTV could affect your ability to remortgage.
Every lender has its own lending criteria. So, having a secured loan does not guarantee that you will be accepted for a new mortgage.
What happens to a secured loan when you remortgage?
If you’re considering remortgaging while you have a secured loan, you may have questions about what happens to the existing borrowing.
There are two possible options to consider:
1. You repay the secured loan
You may consider using funds from your new mortgage to repay your secured loan. This could mean adding the outstanding secured loan balance to your new mortgage. You would then have one mortgage repayment instead of separate mortgage and secured loan repayments.
However, this could change the total amount you repay over the mortgage term. A mortgage may also have a longer repayment term than your secured loan, which could mean paying interest for longer. Early repayment charges or other fees could also apply to your secured loan.
2. You keep the secured loan
You may be able to keep your secured loan when you remortgage. If this happens, you would continue making your usual mortgage payments while also repaying the secured loan in monthly instalments with interest.
The new mortgage lender may need to agree to the secured loan remaining in place. This is because both the mortgage and secured loan are secured against your property.
The lender’s criteria could also affect whether this option is available to you.
Before making a decision, you may want to review the terms of your existing mortgage and secured loan. This could help you understand any charges or restrictions that may apply.
What could affect your ability to remortgage?
Having a secured loan is just one factor that could affect a remortgage application.
A lender may also consider:
- Your income and outgoings: Your income and regular outgoings could affect how much you are able to borrow. Existing secured loan repayments may be included when your affordability is assessed.
- Your credit history: Missed or late payments on your mortgage or secured loan could affect your credit report.
- Your total debt: Your secured loan forms part of your total debt. The amount outstanding could therefore be considered alongside your mortgage and any other borrowing.
- Your available equity: Equity is the difference between the value of your property and the amount you owe on it. The amount of equity available could affect your loan to value. A high LTV may make remortgaging more difficult with some lenders.
- Your mortgage terms: Your existing mortgage may include terms relating to additional secured borrowing. For example, there could be a restriction on taking out further secured borrowing. Early repayment charges may also apply if you repay your existing mortgage before the end of a fixed or discounted period.
What may you want to consider before remortgaging with a secured loan?
If you are considering a remortgage, you may want to compare the costs and terms involved.
Factors to consider could include:
- The interest rate on your existing mortgage
- The interest rate on your secured loan
- Whether either loan has an early repayment charge
- Your current monthly repayments
- The total amount you owe
- The amount of equity available in your property
- Your income and outgoings
- The criteria of the new mortgage lender
- The total amount you could repay over the full term
A lower monthly payment does not necessarily mean you would pay less overall. A longer repayment term could mean paying interest for longer.
If you are unsure about your circumstances, a qualified mortgage advisor may be able to provide guidance.
Secured loans with Evolution Money
Having a secured loan does not automatically prevent you from applying for a new mortgage. However, a loan secured against your home could affect remortgaging because it is an additional financial commitment secured against your home.
If you are considering additional borrowing, it is important to understand the costs and risks involved. A secured loan may not always have a lower interest rate than an unsecured loan, and if you fall behind on your repayments, your home could ultimately be repossessed.
You can check your eligibility for a secured loan with Evolution Money without impacting your credit score.
Alternatively, get in touch for a free, no obligation conversation.
Representative 21.82% APRC (Variable)
For a typical loan of £18,900 over 180 months with a variable interest rate of 18.72% per annum, your monthly repayments would be £335.99 for 179 months and then a final payment of £335.79. This includes a Product Fee of £1890.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £60,478.00. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
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.
