Can I Remortgage If I Have A Homeowner Loan?
Can I Remortgage If I Have A Homeowner Loan?
Find out whether you can remortgage if you have a home loan and what your options are.
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in homeowner loans
Yes, you can remortgage if you have a homeowner loan against your property, but your options may be slightly limited.
In this situation, you have two options – you could either keep the homeowner loan in place and separate from your mortgage, or borrow more money to clear the loan and consolidate it into your mortgage as one monthly repayment.
If you took out your loan through a homeowner loan broker, get in touch to check your specific loan as they may have the answer, or call us and we may be able to guide you.
How a homeowner loan works
A homeowner loan works by securing funds against the equity in your property. The loan is released as a lump sum, which is then repaid over the loan term through regular monthly repayments.
These loans sit alongside your existing mortgage, leaving you with two monthly repayments to make each month.
Homeowner secured loans allow you to borrow against the difference between your property value and your current mortgage balance, known as your equity.
The amount you can borrow is decided based on your property value, the proposed loan to value ratio, your credit history (or credit score) and your chosen lender’s affordability rules.
When a loan is taken out against your home and is not solely for business purposes (for example, to start or invest in a business), the loan is regulated by the Financial Conduct Authority (FCA), which means you’ll benefit from increased consumer protection.
Read more – homeowner loans for home improvements or debt consolidation homeowner loans.
Why do people choose to take out a homeowner loan?
A homeowner loan is an appealing option for many homeowners, due to the simple application process, flexible criteria and ability to raise funds quickly.
In the current lending climate where many borrowers are on low fixed-rate mortgages, it may not be advantageous to remortgage to a new lender.
For this reason, a second charge mortgage, such as a home equity loan or secured loan is the logical choice to keep borrowing costs to a minimum.
Can you remortgage with a homeowner loan?
Yes, you can remortgage if you have a homeowner loan against your property, although you must do so in the correct way to avoid issues.
Consider whether you’re looking to repay your loan or keep it in place alongside your new mortgage. We will dive into this consideration in more detail in the next section of the article.
If you’re unsure which option to choose, consider working with a reputable mortgage broker. A good broker will calculate which option is cheaper (is best for you) and highlight (and avoid) any potential complications associated with either option.
Read more –homeowner loan calculator or homeowner loan rates.
Different ways to remortgage if you have a homeowner loan
As mentioned above, the big consideration when remortgaging with a homeowner loan in place is whether you would like to keep your loan in place or repay it using the new mortgage.
When you remortgage, you have the option of borrowing more money to repay your loan. This allows you to combine the loan and mortgage into one product, with one monthly repayment.
Combining your loan and mortgage simplifies budgeting, as you’ll have a single monthly payment instead of multiple.
That said, while it may be easier to budget, in most cases, the decision should be a purely financial one. It’s best to frame the question as ‘which option is the cheapest’.
Repaying your loan
Repaying your loan and combining it with the new mortgage is the first option. There are several benefits to taking this approach.
There is a good chance that the interest rate on the new mortgage will be lower than your homeowner loan rate, especially if you took out a bad credit homeowner loan and your credit history has improved in the meantime.
Whichever option you choose, you should carefully consider the financial implications and the affordability of your new monthly repayments. This is especially important if they will be higher than your current monthly costs.
Should it work out cheaper to keep your current loan in place, but you prefer the ease of budgeting for one monthly payment, there is a potential solution.
Set up both payments to come out on the same day of the month and take time to understand the combined cost. This will give you the ease of budgeting for one monthly payment, while actually making 2.
The main drawback to this approach is that there could be some costs of repaying your loan early. Some fixed rate homeowner loans have early repayment charges should you repay during the fixed rate period.
The cost of these fees should be taken into account when calculating which option is best for you.
Read more – homeowner loans in England or homeowner loans in Scotland.
Keeping your homeowner loan in place
Of course, you don’t have to repay your loan when you remortgage, you have the option of keeping it in place alongside your new mortgage.
This can work well if you struggle to meet your chosen lender’s affordability rules and can’t borrow enough to repay the loan, or if your homeowner loan interest rate is below the rate of your new mortgage.
Read more – homeowner loans in Wales or homeowner loans in Northern Ireland.
It’s important to note that not all mortgage lenders will lend should you choose to keep your second charge in place, so this approach may restrict your choice of lender.
If you’re looking to keep your loan in place, it’s important that you discuss this with your new lender before you apply. If you’re using a broker, let them know as they will know which lenders will be happy to approve your application and advise on the best way to approach it.
