Many lenders and experts report consumer confusion between the differences of remortgages and secured loans. While both can serve the same purpose, there are many distinguishing features between the two options, questions such as which is the best for you and which would be financially advantageous are common. The quick and easy answer is remortgaging makes better financial sense when compared to the high rates and charges associated secured loans.

Not only can you expect higher interest rates and added charges, one of these extra charges with a secured loan will be on your property, fail to keep up with repayments or within the payment terms and your home could be repossessed. Unfortunately, remortgaging isn’t always available for people still paying their original mortgage, or punitive early switch charges could be inserted into the contracts. Under these circumstances, a secured loan just might be beneficial as switch charges could be more than secured loan drawbacks, the best course is to figure out your circumstances and study each option individually to see which option is the best fit for your circumstances.

So let’s break all this down a little bit, beginning with remortgages. With the current unfavourable conditions within the property market, a maximum 90 per cent Loan to value (LTV) is required for most remortgages. This means that affordability is a key factor. To understand this a little more, let’s have a look at an example. Say you wanted to borrow £130k to help with the purchase of a £150k property; your LTV would be 87%. This is calculated by dividing the total loan amount by the total property price (if your result is in the negative, then it is unlikely you will be granted the loan).

One of the biggest benefits of remortgaging your home is that generally there are no restrictions to how much you can borrow. This makes it an extremely flexible option allowing you to use the money for almost anything. Remortgages are also a fantastic option if you are currently struggling with debt; remortgaging your home can be used as a method of debt consolidation. However, most mortgage companies do apply early redemption charges on their mortgage deals, so you mustn’t go into this believing it will be a good short term fix your repayment term is most definitely a long term commitment.

Other advantages of remortgaging your home include the competitive remortgage deals that lenders offer. Many remortgage plans come with free or discounted valuation and/or legal fees which can save you a lot of money and paperwork in the long term. However, always be wary of these deals and read the small print to ensure you are getting the best possible deal.

So what about secured loans? Well, they generally have fewer charges connected to them, and any that are required depends largely upon the lender. Some will charge lender arrangement fees while others will only charge a broker fee. For this reason, the application process is much quicker than a remortgage application, usually completed between two to four weeks. Additionally, secured loans are a great way of obtaining that much needed cash at lower rates than an unsecured loan.

Although as with all things in life, there are some drawbacks of obtaining a secured loan. These include that you are restricted to borrowing a maximum amount of £100k and that it doesn’t combine with your current mortgage plan. This means you have both separate mortgage and secured loan repayments to contend with. That means, double the outgoings each month, and double the number of lenders you have to deal with. A much smaller loan to value is also required, usually a maximum of 65 per cent which can significantly limit how much you can borrow.

Now it’s time to look at the inevitable similarities between secured loans and mortgages and hence where the confusion tends to stem from. Both, of course, are long term commitments, which means you could be repaying the amount borrowed anything from five to twenty-five years. Furthermore, both remortgages and secured loans use property as security, therefore should you get into financial difficulty and miss any repayments, you house will be at risk of becoming repossessed. Therefore you need to be entirely certain that you can afford either option no and in the long term. So consider if you have a stable income stream that will contribute far into the future.

Lastly, remortgages are offered at a much lower rate than a secured loan so are considered a safer and more affordable form of finance than, say, unsecured loans.

As with all financial matters, talking to a professional financial expert should be your priority as a port of call for advice on any decisions you’re considering. Speaking to an independent advisor instead of one on a bank or building society ensures you are getting fair and unbiased advice on all your options. And access to some of the best remortgage deals.