At a glance

  • One in six UK adults needed to borrow additional money last year because of the COVID-19 pandemic
  • For many, remortgaging is an attractive option
  • The pros of doing this include benefitting from the current low mortgage rates, consolidating debts into a single lower monthly payment and having the option to borrow a larger amount
  • The cons are that, over time, a mortgage can cost more in repayments, it can put your home at risk if you don’t keep up with the repayments, and your mortgage rate could go up after a few years

At a glance

  • One in six UK adults needed to borrow additional money last year because of the COVID-19 pandemic
  • For many, remortgaging is an attractive option
  • The pros of doing this include benefitting from the current low mortgage rates, consolidating debts into a single lower monthly payment and having the option to borrow a larger amount
  • The cons are that, over time, a mortgage can cost more in repayments, it can put your home at risk if you don’t keep up with the repayments, and your mortgage rate could go up after a few years

At a glance

  • One in six UK adults needed to borrow additional money last year because of the COVID-19 pandemic
  • For many, remortgaging is an attractive option
  • The pros of doing this include benefitting from the current low mortgage rates, consolidating debts into a single lower monthly payment and having the option to borrow a larger amount
  • The cons are that, over time, a mortgage can cost more in repayments, it can put your home at risk if you don’t keep up with the repayments, and your mortgage rate could go up after a few years

If you’re considering an additional loan – maybe because you’re struggling with your finances, you want to help out someone in your family, or you’re working out how to pay off other debts by consolidating everything into a single loan – you’re not alone.

During 2020, nearly nine million people in the UK – that’s one in six adults – needed to borrow additional money because of the negative impact of the COVID-19 pandemic on their finances. What’s more, borrowers were tending to go for higher amounts. The proportion borrowing £1,000 or more increased from 35% in the first half of last year to 45% in the second half1.

If you’re in this kind of situation, releasing equity in your home by remortgaging can seem like an attractive proposition, particularly as mortgage rates are currently so low. However, there are some clear pros and cons to doing this, so it’s worth weighing up everything carefully to ensure the amount you have to pay back on whatever you borrow is kept to a minimum.

Here are the key points to consider:

The advantages of remortgaging

  • It’s an effective way of releasing equity in your property (i.e. turning some of its value into cash) without going through the expense and upheaval of moving to a new home.
  • You can usually borrow at a far lower interest rate than if you take out a personal loan or use a credit card. Currently, the average mortgage rate is hovering around the 3-4% mark (if you’re borrowing 90% of the value of your property – and the rate will decrease if you’re borrowing a smaller proportion)2. Meanwhile, the average unsecured loan rate for a sum of £3,000 is around 15%3 – although if you have a good credit rating and shop around, you should be able to find a better deal than that. Meanwhile, the average credit-card interest rate is around 18%4 (which shows you should never borrow money on a credit card if you can help it).
  • It’s a sensible means of consolidating other debts into a single, more affordable monthly payment. For example, if you have several loans or credit-card balances at a higher interest rate than the rate you could remortgage for and are looking at how to pay off debt, it could make sense to use the extra money from releasing equity from your home to repay those loans.
  • If you want to borrow a large amount, you might need to consider the remortgage option, as many lenders won’t offer unsecured loans above £25,000.
  • If you have a poor credit rating, it can often be easier to extend your mortgage than take out a personal loan, especially if you haven’t missed any mortgage payments.

The disadvantages of remortgaging

  • You could end up paying back significantly more, owing to the length of the term. A standard mortgage is 25 years, and the shortest possible is five years. However, a personal loan can be for as little as a year. When you add up all the monthly interest payments, it can often make more sense to get a loan at a higher rate for a shorter time, rather than a mortgage at a lower rate for a longer time. For example, if you borrow £10,000 at 15% for one year, it will cost you £777.72 in added interest. Whereas, if you borrow the same amount at 4% for five years, the total interest will cost you £1,030.56.
  • Mortgage rates are increasing and likely to go up further, while a personal loan will be at a constant rate that won’t change for the period of the agreement. It is possible to ‘fix’ your mortgage rate for a number of years – usually two to five – but after that, you would either have to fix it again at a new rate or go onto a variable rate. Either way, that’s likely to mean paying more.
  • You’ll usually need to pay an arrangement fee, which can result in the total cost of the mortgage loan being higher than if you’d taken out a personal loan.
  • You risk losing your home if you don’t keep up with mortgage repayments. That’s because, with a mortgage, your property is used to guarantee the loan, so if you miss too many monthly instalments, it could be repossessed by the lender.
  • You could find yourself with ‘negative equity’ if the value of your property decreases – this is where the amount left to pay on your mortgage is more than your property is worth. If that happens, you might find it impossible to move home, unless you have savings that you can use to pay off the difference.
  • You might not be able to borrow a small amount – and of course, it’s never sensible to borrow more than you actually need. Some mortgage lenders won’t consider anything below £25,000, whereas it’s possible to get a personal loan for upwards of just £1,000.
  • It can take a lot longer to arrange. A personal loan can often be agreed in minutes, whereas remortgaging a property usually takes weeks. So, if you’re borrowing only a small amount, or need the money quickly, you might find it’s not worth the time or the expense.
  • Some mortgages aren’t ‘portable’ – that is, you might not be able to use them to cover another property – and even if they are, it can often be expensive to move them. So if you’re planning to move home during the term of your loan, make sure you consider these additional costs.

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

If you’re considering an additional loan – maybe because you’re struggling with your finances, you want to help out someone in your family, or you’re working out how to pay off other debts by consolidating everything into a single loan – you’re not alone.

During 2020, nearly nine million people in the UK – that’s one in six adults – needed to borrow additional money because of the negative impact of the COVID-19 pandemic on their finances. What’s more, borrowers were tending to go for higher amounts. The proportion borrowing £1,000 or more increased from 35% in the first half of last year to 45% in the second half1.

If you’re in this kind of situation, releasing equity in your home by remortgaging can seem like an attractive proposition, particularly as mortgage rates are currently so low. However, there are some clear pros and cons to doing this, so it’s worth weighing up everything carefully to ensure the amount you have to pay back on whatever you borrow is kept to a minimum.

Here are the key points to consider:

The advantages of remortgaging

  • It’s an effective way of releasing equity in your property (i.e. turning some of its value into cash) without going through the expense and upheaval of moving to a new home.
  • You can usually borrow at a far lower interest rate than if you take out a personal loan or use a credit card. Currently, the average mortgage rate is hovering around the 3-4% mark (if you’re borrowing 90% of the value of your property – and the rate will decrease if you’re borrowing a smaller proportion)2. Meanwhile, the average unsecured loan rate for a sum of £3,000 is around 15%3 – although if you have a good credit rating and shop around, you should be able to find a better deal than that. Meanwhile, the average credit-card interest rate is around 18%4 (which shows you should never borrow money on a credit card if you can help it).
  • It’s a sensible means of consolidating other debts into a single, more affordable monthly payment. For example, if you have several loans or credit-card balances at a higher interest rate than the rate you could remortgage for and are looking at how to pay off debt, it could make sense to use the extra money from releasing equity from your home to repay those loans.
  • If you want to borrow a large amount, you might need to consider the remortgage option, as many lenders won’t offer unsecured loans above £25,000.
  • If you have a poor credit rating, it can often be easier to extend your mortgage than take out a personal loan, especially if you haven’t missed any mortgage payments.

The disadvantages of remortgaging

  • You could end up paying back significantly more, owing to the length of the term. A standard mortgage is 25 years, and the shortest possible is five years. However, a personal loan can be for as little as a year. When you add up all the monthly interest payments, it can often make more sense to get a loan at a higher rate for a shorter time, rather than a mortgage at a lower rate for a longer time. For example, if you borrow £10,000 at 15% for one year, it will cost you £777.72 in added interest. Whereas, if you borrow the same amount at 4% for five years, the total interest will cost you £1,030.56.
  • Mortgage rates are increasing and likely to go up further, while a personal loan will be at a constant rate that won’t change for the period of the agreement. It is possible to ‘fix’ your mortgage rate for a number of years – usually two to five – but after that, you would either have to fix it again at a new rate or go onto a variable rate. Either way, that’s likely to mean paying more.
  • You’ll usually need to pay an arrangement fee, which can result in the total cost of the mortgage loan being higher than if you’d taken out a personal loan.
  • You risk losing your home if you don’t keep up with mortgage repayments. That’s because, with a mortgage, your property is used to guarantee the loan, so if you miss too many monthly instalments, it could be repossessed by the lender.
  • You could find yourself with ‘negative equity’ if the value of your property decreases – this is where the amount left to pay on your mortgage is more than your property is worth. If that happens, you might find it impossible to move home, unless you have savings that you can use to pay off the difference.
  • You might not be able to borrow a small amount – and of course, it’s never sensible to borrow more than you actually need. Some mortgage lenders won’t consider anything below £25,000, whereas it’s possible to get a personal loan for upwards of just £1,000.
  • It can take a lot longer to arrange. A personal loan can often be agreed in minutes, whereas remortgaging a property usually takes weeks. So, if you’re borrowing only a small amount, or need the money quickly, you might find it’s not worth the time or the expense.
  • Some mortgages aren’t ‘portable’ – that is, you might not be able to use them to cover another property – and even if they are, it can often be expensive to move them. So if you’re planning to move home during the term of your loan, make sure you consider these additional costs.

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

If you’re considering an additional loan – maybe because you’re struggling with your finances, you want to help out someone in your family, or you’re working out how to pay off other debts by consolidating everything into a single loan – you’re not alone.

During 2020, nearly nine million people in the UK – that’s one in six adults – needed to borrow additional money because of the negative impact of the COVID-19 pandemic on their finances. What’s more, borrowers were tending to go for higher amounts. The proportion borrowing £1,000 or more increased from 35% in the first half of last year to 45% in the second half1.

If you’re in this kind of situation, releasing equity in your home by remortgaging can seem like an attractive proposition, particularly as mortgage rates are currently so low. However, there are some clear pros and cons to doing this, so it’s worth weighing up everything carefully to ensure the amount you have to pay back on whatever you borrow is kept to a minimum.

Here are the key points to consider:

The advantages of remortgaging

  • It’s an effective way of releasing equity in your property (i.e. turning some of its value into cash) without going through the expense and upheaval of moving to a new home.
  • You can usually borrow at a far lower interest rate than if you take out a personal loan or use a credit card. Currently, the average mortgage rate is hovering around the 3-4% mark (if you’re borrowing 90% of the value of your property – and the rate will decrease if you’re borrowing a smaller proportion)2. Meanwhile, the average unsecured loan rate for a sum of £3,000 is around 15%3 – although if you have a good credit rating and shop around, you should be able to find a better deal than that. Meanwhile, the average credit-card interest rate is around 18%4 (which shows you should never borrow money on a credit card if you can help it).
  • It’s a sensible means of consolidating other debts into a single, more affordable monthly payment. For example, if you have several loans or credit-card balances at a higher interest rate than the rate you could remortgage for and are looking at how to pay off debt, it could make sense to use the extra money from releasing equity from your home to repay those loans.
  • If you want to borrow a large amount, you might need to consider the remortgage option, as many lenders won’t offer unsecured loans above £25,000.
  • If you have a poor credit rating, it can often be easier to extend your mortgage than take out a personal loan, especially if you haven’t missed any mortgage payments.

The disadvantages of remortgaging

  • You could end up paying back significantly more, owing to the length of the term. A standard mortgage is 25 years, and the shortest possible is five years. However, a personal loan can be for as little as a year. When you add up all the monthly interest payments, it can often make more sense to get a loan at a higher rate for a shorter time, rather than a mortgage at a lower rate for a longer time. For example, if you borrow £10,000 at 15% for one year, it will cost you £777.72 in added interest. Whereas, if you borrow the same amount at 4% for five years, the total interest will cost you £1,030.56.
  • Mortgage rates are increasing and likely to go up further, while a personal loan will be at a constant rate that won’t change for the period of the agreement. It is possible to ‘fix’ your mortgage rate for a number of years – usually two to five – but after that, you would either have to fix it again at a new rate or go onto a variable rate. Either way, that’s likely to mean paying more.
  • You’ll usually need to pay an arrangement fee, which can result in the total cost of the mortgage loan being higher than if you’d taken out a personal loan.
  • You risk losing your home if you don’t keep up with mortgage repayments. That’s because, with a mortgage, your property is used to guarantee the loan, so if you miss too many monthly instalments, it could be repossessed by the lender.
  • You could find yourself with ‘negative equity’ if the value of your property decreases – this is where the amount left to pay on your mortgage is more than your property is worth. If that happens, you might find it impossible to move home, unless you have savings that you can use to pay off the difference.
  • You might not be able to borrow a small amount – and of course, it’s never sensible to borrow more than you actually need. Some mortgage lenders won’t consider anything below £25,000, whereas it’s possible to get a personal loan for upwards of just £1,000.
  • It can take a lot longer to arrange. A personal loan can often be agreed in minutes, whereas remortgaging a property usually takes weeks. So, if you’re borrowing only a small amount, or need the money quickly, you might find it’s not worth the time or the expense.
  • Some mortgages aren’t ‘portable’ – that is, you might not be able to use them to cover another property – and even if they are, it can often be expensive to move them. So if you’re planning to move home during the term of your loan, make sure you consider these additional costs.

Your home may be repossessed if you do not keep up repayments on your mortgage.

 

References

1. Office of National Statistics, Personal and Economic Wellbeing in the UK, January 2021

2. Moneyfacts, UK Mortgage Trends Treasury Report, February 2021

3. MoneyFacts.co.uk, January 2021

4. Bank of England, Money and Credit, June 2020

References

1. Office of National Statistics, Personal and Economic Wellbeing in the UK, January 2021

2. Moneyfacts, UK Mortgage Trends Treasury Report, February 2021

3. MoneyFacts.co.uk, January 2021

4. Bank of England, Money and Credit, June 2020

References

1. Office of National Statistics, Personal and Economic Wellbeing in the UK, January 2021

2. Moneyfacts, UK Mortgage Trends Treasury Report, February 2021

3. MoneyFacts.co.uk, January 2021

4. Bank of England, Money and Credit, June 2020

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