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Should I take out a Secured Loan or use my Mortgage to raise money to Consolidate Debts?

Many people looking to raise finance, especially if they are looking to pay off all their debts will either take out a personal loan (usually secured against their property) or they will apply to their mortgage lender to extend or increase their mortgage. Both of these routes can give simple and cost-effective ways of taking control of your finances again. But, which one will suit you best? Let’s take a look at the some pros and cons.
  • Monthly cost: using a secured loan to raise money will cost more initially in terms of repayments than extending your mortgage as mortgage rates are lower.

  • Overall cost: but, bundling up more debt into your mortgage may mean that you pay back more interest overall as you’ll be making your repayments for a far longer time.

  • One stop payment: if you extend your mortgage loan to repay your debts then you will simply see an increase in your mortgage payment every month.

  • Multiple payments: if you use a secured loan then you will have an additional payment to make in addition to your mortgage.

  • Quick repayment: secured loans will last for far less time than your mortgage in most cases so once you’ve paid them off, you’re done.

  • Longer repayment terms: your mortgage could take many more years to pay off in full than a standard secured loan.

Your job here is to look at the all the different factors involved in both solutions with a view to choosing the right one for you. In certain cases, your choice of debt consolidation may be simple. For example:
  • If you simply need the lowest monthly repayment that you can get then a remortgage may be your best bet.

  • If you want to pay back less in the long term then a secured loan may be a better choice.

Unfortunately, for many people, the choice is not always so easy to make. We all have complex circumstances and we may not all be able to get the ideal solution…..just an acceptable one. Remember, this is always better than getting the wrong solution!

It is also worth bearing in mind that the current state of the economy will often make it easier to arrange to remortgage or to extend your loan here rather than to take out a secured loan. Lenders have a certain ‘comfort factor’ when it comes to loans that you already have with them such as your mortgage. Increasing your commitment here is a quick and easy job for them and for you.

They may not, however, be so keen to give out new loans, secured or otherwise and you could find that it also takes longer to get approval for a secured loan than it does with a mortgage solution. Interest rates will often be higher than they have been in the past to compensate for the effects of the recession. It is, however, still possible to get secured finance with a good deal so if this is your chosen solution then this should not be a serious problem if you take some time to dig out the best deals.
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