Secured Loan vs Remortgage UK

Secured loan vs remortgage: the key decision

When you need to raise money against your property, you typically have two main options: take out a secured loan (second charge mortgage) or remortgage to a new first mortgage for a larger amount. Both use your home equity, but they work differently and each has distinct advantages depending on your situation.

The right choice depends on your existing mortgage rate, early repayment charges, the amount you need to borrow, your credit profile, and current market conditions. Getting this decision wrong can cost you thousands of pounds over the life of the loan.

How each option works

With a remortgage, you replace your existing mortgage with a new, larger one. The new mortgage pays off your old one, and you receive the difference as cash. You end up with a single monthly payment to one lender. For example, if your current mortgage is £180,000 on a £300,000 property and you need £30,000, you would take a new mortgage of £210,000.

With a secured loan, your existing mortgage stays in place and you take a separate loan secured against the same property. You have two monthly payments to two different lenders. Using the same example, you would keep your £180,000 mortgage and add a £30,000 secured loan alongside it.

The interest rate on a remortgage is typically lower than on a secured loan, because first charge mortgages carry less risk for the lender. However, the remortgage rate applies to the entire borrowing (£210,000), while the secured loan rate only applies to the additional amount (£30,000).

When a secured loan is the better choice

A secured loan is generally preferable in these scenarios:

• You have a competitive existing mortgage rate: if you locked in at 2–3% on a five-year fix, giving that up to remortgage at 5% would increase the cost on your entire mortgage, not just the extra borrowing
• High early repayment charges: if your mortgage has ERCs of 3–5%, the penalty for leaving early could be £5,000–£10,000, making a secured loan cheaper despite the higher rate
• You need a relatively small amount: for borrowing under £30,000, the fees associated with remortgaging (typically £1,000–£2,000) may not be justified
• Speed is important: secured loans can sometimes complete faster than remortgages, especially if your current lender is slow to process redemption

When remortgaging is the better choice

Remortgaging is usually the better option when:

• Your current deal is ending: if your fixed or tracker rate is expiring and you would move to the SVR anyway, remortgaging to release equity adds minimal extra cost
• You are already on the SVR: standard variable rates are typically 7–8%, so remortgaging to a new fixed rate will likely save money even before considering the extra borrowing
• No or low ERCs: if there is no penalty for leaving your current deal, remortgaging avoids the higher rate of a second charge
• You need a large amount: for borrowing above £50,000, the lower interest rate on a remortgage usually outweighs the fees
• Simplicity: one monthly payment to one lender is easier to manage

Running the numbers: a worked example

Consider a homeowner with a £250,000 property, a £180,000 mortgage at 2.5% fixed for four more years (3% ERC), who needs £25,000 for home improvements.

Option A — Secured loan: £25,000 at 8% over 10 years. Monthly cost: £303. Total interest: £11,400. Fees: £1,000. Existing mortgage continues at £180,000 at 2.5%. Total additional cost: £12,400.

Option B — Remortgage: new mortgage of £205,000 at 5% over 25 years. ERC on old mortgage: £5,400. Arrangement fee: £1,000. The increased rate on the original £180,000 (from 2.5% to 5%) costs an extra £4,500 per year for the remaining four years of the old fix = £18,000 additional interest, plus the £5,400 ERC. Total additional cost is significantly higher.

In this scenario, the secured loan is clearly the better option despite the higher rate on the £25,000, because it preserves the competitive rate on the larger first mortgage.

Can you do both?

In some situations, the best approach is to do both at different times. For example, you might take a secured loan now to fund urgent home improvements while your mortgage rate is still competitive, then consolidate the secured loan into a remortgage when your current deal expires. This hybrid approach requires planning but can minimise total costs.

Some lenders also offer further advances, which add extra borrowing to your existing first mortgage without requiring a full remortgage. The rate may differ from your main mortgage rate, but it avoids the complications of a second charge. Check with your current lender whether this option is available.

Get expert help deciding between a secured loan and remortgage

This decision involves comparing multiple variables over different time periods, and the right answer varies for every homeowner. A broker who advises on both mortgages and secured loans can run a full cost comparison and recommend the most cost-effective option. Find a specialist remortgage broker or secured loan broker through Nesto — matching is free and takes under two minutes.