So you’ve decided on your purchase, but the next question is, how should you finance it? Whether it’s a new car, a kitchen renovation or even a wedding, there are several ways you could raise the funds. We know big purchase financing is a bit of a minefield. That’s why we’ve put together some information about your potential options!
Are you a homeowner?
If you are a homeowner you will have a few more options available to you. If you’re not, don’t worry, you’ve still got options but you may want to skip this paragraph and move onto unsecured loans.
Being a homeowner means you have an asset that you could potentially secure a loan against. If you are looking to make a purchase, you have further finance options available, such as; a secured loan (also known as a second charge mortgage or homeowner loan) and a remortgage.
Remortgage
If you own equity on your property, then you may be able to remortgage to release the equity to fund your purchase. For those looking to make home improvements, an equity release remortgage is a popular way to raise the finance.
The process for a remortgage is similar to an application for any mortgage. If you are unsure where to look for the best deals, use a broker like our mortgages partner who is able to compare over 70 lenders to find you a deal tailored to your individual circumstances.
Usually the best time to do this is when you are nearing the end of your mortgage term and you are looking to obtain a new mortgage quote. If you are not near the end of your mortgage term, you could still consider remortgaging. However, you need to be aware of any potential early exit fees with your current lender.
Secured Loan (also known as Second Charge Mortgage or Homeowner Loan)
Not sure if a remortgage is for you? You could also consider a secured loan. A secured loan is different from a remortgage, because it’s a sum taken out separately from your current mortgage and doesn’t affect your current mortgage deal. However, it is still a loan secured against your property.
If you have struggled to get an unsecured loan in the past due to your credit score, it may be worth considering a secured loan. As it is secured against your property, there’s less risk involved which means lenders are usually more willing to lend. You must ensure you make your repayments on time as you may risk losing your home. If you make all your repayments on time every month you may actually improve your credit score.
A secured loan is also good for higher value purchases. You can borrow up to £2,000,000 with some secured loan lenders, significantly more than the maximum borrowing for an unsecured loan.
Unsecured Loan (personal loan)
Unlike the above, an unsecured loan is not secured against a property and you do not need to be a homeowner to take one out. As interest rates are significantly low at the moment, unsecured loans are a popular way to fund purchases such as cars, holidays and home improvements. An unsecured loan can often be a reasonably quick way of accessing funds and the application process is fairly simple.
Other options
In addition to the above, there are also other finance options available, such as; your personal savings, credit cards or an overdraft. Before deciding the one for you, make sure you do your research so you can be confident you’re choosing the right option.
The above post does not constitute as financial advice and is intended to be informative.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
