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Secured loans - The most appropriate solution
In the past many mortgage intermediaries have been reluctant to get involved with secured loan or second charge (as they are sometimes known) applications. It could also be said that this is still the case in today’s market, however things are changing and there are a number of reasons for this.
With the Financial Services Authority and the increased regulation that has subsequently come about, mortgage brokers are beginning to realise that there are many occasions when a second charge/secured loan provides a more appropriate funding solution to a remortgage.
A remortgage has long been viewed as providing a relatively cheap way of raising finance. The rates obtainable on a mortgage are of course far less than those on unsecured finance. However there are times where it is not advisable to remortgage in pursuit of capital raising.
There are many occasions when a second charge/secured loan provides a more appropriate funding solution to a remortgage. The most obvious example is where a borrower has a large redemption penalty on their existing mortgage. Early redemption penalties take various forms and of course each lender’s terms and conditions will differ. Some fixed rate mortgages carry penalties of up to 7% of the outstanding mortgage balance if redeemed within the fixed rate period. Some will even carry an ‘overhang’ penalty after the tie in penalty comes to an end, although this is not too common these days.
An important consideration to bear in mind is that of the overall cost of the loan. The APR is tool that can be used when comparing different products as it will take into account associated fees and charges. The remortgage process carries many different fees including valuation and administration fees, lender arrangement fees, legal fees, and in many cases, broker fees, discharge fees, title insurance and telegraphic transfer fees. Secured loans will carry very few of these fees outlined and will usually only be subject to the lender’s arrangement fee and a broker fee, although the latter will not always apply.
In order to assess the most advantageous financial solution, the total cost of borrowing must be compared between both options. It must be stressed that each case should always be assessed on its own merits in order to work out the most appropriate financial solution.
For borrowers with a blemished credit record, if their original mortgage was taken out before running into credit problems, the chances are that raising additional finance through a remortgage would mean paying a higher interest rate on the entire amount of their borrowings. (i.e the WHOLE mortgage) By using a secured loan in this case, they can still benefit from the prime rate of interest on their mortgage whilst only being charged a higher non-conforming rate on the new secured loan – the additional finance.
While the overall cost of borrowing is a major consideration, other factors should also be considered. Speed is an important factor that is often overlooked when assessing the remortgage versus secured loan comparison. It is however, just as valid in a compliance context as overall cost.
Typically secured loans can complete in under 21 days, some in as little as 10 days. This is usually dependent on whether the subject loan has a cooling off period attached. When a client needs to obtain additional finance quickly, then the usual concerns that govern suitability need to be tempered by the time frame in which the client needs their funds. Provided they are aware of the facts, then if speed is the primary issue, a secured loan will win every time over remortgage or further advance.
In the past many mortgage intermediaries have been reluctant to get involved with secured loan or second charge (as they are sometimes known) applications. It could also be said that this is still the case in today’s market, however things are changing and there are a number of reasons for this.
With the Financial Services Authority and the increased regulation that has subsequently come about, mortgage brokers are beginning to realise that there are many occasions when a second charge/secured loan provides a more appropriate funding solution to a remortgage.
A remortgage has long been viewed as providing a relatively cheap way of raising finance. The rates obtainable on a mortgage are of course far less than those on unsecured finance. However there are times where it is not advisable to remortgage in pursuit of capital raising.
There are many occasions when a second charge/secured loan provides a more appropriate funding solution to a remortgage. The most obvious example is where a borrower has a large redemption penalty on their existing mortgage. Early redemption penalties take various forms and of course each lender’s terms and conditions will differ. Some fixed rate mortgages carry penalties of up to 7% of the outstanding mortgage balance if redeemed within the fixed rate period. Some will even carry an ‘overhang’ penalty after the tie in penalty comes to an end, although this is not too common these days.
An important consideration to bear in mind is that of the overall cost of the loan. The APR is tool that can be used when comparing different products as it will take into account associated fees and charges. The remortgage process carries many different fees including valuation and administration fees, lender arrangement fees, legal fees, and in many cases, broker fees, discharge fees, title insurance and telegraphic transfer fees. Secured loans will carry very few of these fees outlined and will usually only be subject to the lender’s arrangement fee and a broker fee, although the latter will not always apply.
In order to assess the most advantageous financial solution, the total cost of borrowing must be compared between both options. It must be stressed that each case should always be assessed on its own merits in order to work out the most appropriate financial solution.
For borrowers with a blemished credit record, if their original mortgage was taken out before running into credit problems, the chances are that raising additional finance through a remortgage would mean paying a higher interest rate on the entire amount of their borrowings. (i.e the WHOLE mortgage) By using a secured loan in this case, they can still benefit from the prime rate of interest on their mortgage whilst only being charged a higher non-conforming rate on the new secured loan – the additional finance.
While the overall cost of borrowing is a major consideration, other factors should also be considered. Speed is an important factor that is often overlooked when assessing the remortgage versus secured loan comparison. It is however, just as valid in a compliance context as overall cost.
Typically secured loans can complete in under 21 days, some in as little as 10 days. This is usually dependent on whether the subject loan has a cooling off period attached. When a client needs to obtain additional finance quickly, then the usual concerns that govern suitability need to be tempered by the time frame in which the client needs their funds. Provided they are aware of the facts, then if speed is the primary issue, a secured loan will win every time over remortgage or further advance.
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