Introduction to Secured Loans

So you need a new car, or a conservatory extension on your house, or a new kitchen or bathroom. What is the cheapest way to borrow for these things?

Let's imagine you have been living in your new home for a few years and during that time it has gone up in value by 30%. It's now worth £260,000 compared to the £165,000 you paid for it. Your outstanding mortgage (taking account of what you have paid off on your repayment mortgage) is now only £130,000. You now have £130,000 of equity in the property and you can borrow against that added value by increasing your existing mortgage. This is by far the cheapest way of borrowing money for large items.

In these circumstances, your bank or building society lender will be delighted to lend you more money, provided you have kept up to date on your mortgage repayments since you took out your original mortgage. You should be able to get the increase on the same terms as your existing mortgage. If your lender does not agree to that and you are clear of the early redemption penalty period, shop around for a new lender. You may find a financial adviser as helpful as with the original loan. There will be plenty of lenders around offering to start a brand new mortgage for the whole of your existing outstanding mortgage plus the new money you want to borrow. And you can probably start a new discounted variable rate period too. Be careful, though, if you are benefiting from a fixed or capped rate mortgage where standard variable rates are already above the fixed or capped rate which you are paying. In these circumstances you will be better off agreeing to borrow the extra money you need from your existing lender at the higher SVR than giving up the benefit of your fixed rate or cap on what you owe already.

Before you switch from one lender to another for a better rate, check what set-up fees, legal costs and valuation fees you may have to pay. Some lenders will negotiate on these in order to get your business. When you think you have the best deals on the up front fees and charges, make sure that they don't add up to more than any extra you will pay in interest over the remaining period of the loan if you stick with your existing lender. A good financial adviser will help you with the calculation.