The choice between a secured loan vs remortgage comes down to one calculation that most people never actually do properly: what does it cost to move your whole mortgage versus what does it cost to borrow only the extra amount you need. A remortgage often looks cheaper on the headline rate, but once you add the early repayment charge on your existing deal and the arrangement fees on the new one, a secured loan frequently wins for anyone who needs a top-up rather than a full refinance.
This is the single most common question we get asked by property owners and business owners raising capital against a home or commercial asset. Everyone assumes the lowest interest rate automatically means the lowest cost. It doesn't. Below we'll walk through exactly how to work this out properly, with real numbers, and cover the route almost everyone forgets about entirely.
We speak to people most weeks who have already rung their existing mortgage lender, been quoted a rate for extra borrowing, and assumed that's their only option. It rarely is. There are usually at least two other routes on the table, and sometimes three, and the cheapest one is not always the obvious one. Working through the sums properly, rather than going with whatever the first person you speak to suggests, can easily save several thousand pounds over the life of the borrowing.
The reason this decision trips people up so often is that the maths genuinely isn't intuitive. A lower headline rate on a remortgage can end up costing more overall once fees, charges and the effect of re-pricing your whole balance are factored in. A higher rate on a secured loan can end up cheaper in pounds and pence because it only touches the new borrowing. This article sets out how to work through that properly, step by step, with realistic UK figures throughout.
It also helps to remember that these two products were never designed to compete head to head in the first place. A remortgage is, at its heart, a whole-of-mortgage decision, built around getting the best long term rate on everything you owe. A secured loan is a top-up tool, built around raising a specific sum without disturbing the arrangement you already have. Once you view them that way, the comparison stops being about which is cheaper in the abstract and becomes about which one matches what you actually need to achieve.
We've seen brokers and borrowers alike fall into the trap of treating this as a simple interest rate contest, when really it's a cash flow and cost-over-time exercise. Two borrowers with identical properties, identical existing mortgages and identical funding needs can end up with completely different answers, purely because one is eighteen months into a five year fix and the other is six weeks from the end of theirs. Timing, in this decision, often matters more than the headline rate itself.
What this means in practice
In practice, deciding between a secured loan and a remortgage means comparing two entirely different products that both use your property as security but behave very differently once you dig into the mechanics.
A remortgage replaces your existing mortgage with a new one, usually with a new lender, at a new rate, for the whole balance plus whatever extra you're borrowing. A secured loan, sometimes called a second charge mortgage, sits behind your existing mortgage as a separate loan. Your current mortgage stays exactly as it is. The secured loan is a second legal charge registered against the property, repaid alongside or after the first mortgage.
The practical difference is what you're actually paying interest on. With a remortgage you're re-pricing the entire balance, including the chunk you were already happily paying at a lower fixed rate. With a secured loan you're only paying the (usually higher) rate on the new money. That distinction is where most of the real savings or real losses hide.
Think of it in terms of two separate pots of money. On a remortgage, both pots, your existing balance and your new borrowing, get merged into one pot and both start paying whatever the new rate is. On a secured loan, the pots stay separate, each earning interest at its own rate, and only get combined later if and when you choose to remortgage everything together at the end of your fix.
There's also a third option that gets forgotten constantly: a further advance from your existing mortgage lender. This is simply your current lender agreeing to lend you more, on top of your existing mortgage, often without disturbing your current rate or triggering an early repayment charge at all. It's not always available, and the rate on the further advance itself is rarely as attractive as your original deal, but when it's on the table it deserves serious consideration before either of the other two routes.
Further advances tend to work on their own separate sub-account within your existing mortgage, meaning you could end up with two rates running side by side under one lender, your original rate on the original balance and a new rate on the further advance amount. Some lenders allow this new chunk to be fixed separately for a shorter term, which can be useful if you only need the extra borrowing for a defined period, such as while a renovation project is underway.
None of these three options is universally right. Which one wins depends heavily on where you are in your current fixed rate term, how much extra you actually need to borrow, and what your current lender is prepared to offer. Let's break each of those factors down properly.
Why the early repayment charge changes everything
The single biggest factor that tips the balance towards a secured loan is the early repayment charge, often shortened to ERC, on your existing mortgage.
Most fixed rate mortgages in the UK carry an ERC if you leave the deal before the fixed term ends. These charges are typically tiered, reducing the closer you get to the end of the fix. A common structure looks something like 5% of the outstanding balance in year one, tapering down to 1% in the final year of a five year fix.
On a £250,000 mortgage balance, a 3% ERC is £7,500. That's not a small number. It's money that goes straight to your existing lender for the privilege of leaving early, and it's added on top of whatever fees the new lender charges for setting up the remortgage.
If you're two years into a five year fix and need to raise £40,000 for an extension, a full remortgage means paying that ERC on the entire £250,000 balance, not just the £40,000 you actually need. That's the trap. People focus on the rate for the new borrowing and completely overlook that the ERC applies to money they never wanted to touch in the first place.
A secured loan sidesteps this completely. Your existing mortgage and its fixed rate stay untouched. You only borrow, and only pay interest, on the £40,000 you actually need. No ERC, no disturbance to the deal you're already locked into.
This is why, in our experience, anyone still within an ERC period on their current mortgage should look extremely closely at a secured loan before even considering a remortgage. The numbers usually favour it heavily, sometimes overwhelmingly so. If you're weighing this up right now, it's worth taking a moment to get a secured loan quote against your own figures before committing to either route.
It's also worth checking exactly how your lender calculates the ERC, because not every lender uses a simple percentage of balance. Some use a sliding scale linked to interest rate differentials, others apply the charge to the balance at the start of the year rather than the balance at the point you leave. These details can shift the actual figure by hundreds or even a couple of thousand pounds either way, so it's worth asking your lender for an exact redemption statement rather than relying on the percentage quoted in your original mortgage offer document.
Some borrowers also overlook that ERCs can sometimes be partially avoided using an annual overpayment allowance. Many fixed rate mortgages let you overpay up to 10% of the balance each year without triggering a charge. If your capital need is modest and falls within that allowance, technically you could raise some of the funds simply by underpaying elsewhere and drawing down savings, though this obviously isn't a lending solution in the true sense and only applies to a narrow set of circumstances.
Working through a real example with figures
Numbers make this far easier to follow than theory, so here's a worked example using figures that are realistic for the UK market in 2024.
Say you have an existing mortgage balance of £200,000, on a five year fix at 3.5%, with two years left to run. You want to raise £50,000 to fund a loft conversion and a new kitchen. Your property is worth £450,000, giving you plenty of equity to work with either way.
Option one is a full remortgage. Current market rates for a new five year fix at your loan to value might be around 4.8%. Your ERC for leaving early is 2%, so £4,000 on the £200,000 balance. Add a typical arrangement fee of £999, plus legal and valuation costs that might come to £500 if not covered by a free legals package. Total upfront cost: roughly £5,500. Your new mortgage balance becomes £250,000 at 4.8%, meaning you're now paying a higher rate on money you were previously paying 3.5% on.
Over the two years you'd otherwise have remaining on your original fix, that rate increase alone, from 3.5% to 4.8% on £200,000, adds up to roughly £2,600 a year in extra interest, purely on the money you didn't actually need to raise. Combined with the £5,500 in upfront costs, the true cost of the remortgage route over those two years works out considerably higher than the sticker price of the new deal would suggest.
Option two is a secured loan for £50,000. A realistic rate for a second charge loan at this loan to value might sit around 7.5% to 9%, depending on the lender and your circumstances. There's typically an arrangement fee, often 1.5% to 2% of the loan, so somewhere between £750 and £1,000. There's no ERC because your first mortgage isn't touched. Your existing £200,000 stays at 3.5%.
Taking a mid-point rate of 8.25% on the £50,000 secured loan, annual interest comes to roughly £4,125, against fees of around £875. Over two years, before any capital repayment, that's approximately £9,125 in interest plus the upfront fee. Compare that to the remortgage route's £5,500 in upfront costs plus around £5,200 in extra interest on the existing balance over the same two years, and the two options can end up surprisingly close, which is exactly why running the actual figures for your specific circumstances matters so much more than following a general rule.
Run both scenarios over the two years remaining on your fix and the secured loan usually comes out ahead, sometimes by a significant margin, because you avoid the ERC entirely and you're not re-pricing £200,000 of borrowing that was already on a competitive rate. Once your fix ends, you can then look at consolidating everything into a single remortgage without any penalty, at whatever rate is available at that point.
Option three, the further advance, might look like this. Your existing lender offers £50,000 at 5.9%, slightly above your original 3.5% but well below the secured loan rate, with a modest £199 fee and no ERC because you're staying with the same lender. If this is available, it's very often the cheapest route of all three, which is exactly why it's worth asking about before doing anything else.
On that same £50,000 at 5.9% over two years, you're looking at roughly £2,950 a year in interest, so around £5,900 over two years, plus the £199 fee. That comes in noticeably below both the remortgage and secured loan routes in this particular scenario, which illustrates why the further advance question is always worth asking first, even if it feels like an obvious step to skip.
When a remortgage is actually the better choice
None of this means secured loans are always the answer. There are plenty of situations where a remortgage genuinely is the better route.
If your current fixed rate deal has already ended and you're sitting on your lender's standard variable rate, there's no ERC to worry about at all. In that situation, a remortgage to a new competitive fixed rate, with the extra borrowing rolled in, is usually straightforward and often the cheapest way to raise capital.
Standard variable rates in the UK tend to sit noticeably higher than fixed rate deals, often two to three percentage points above what a new fix would offer. If you've drifted onto your lender's SVR without realising, simply remortgaging to a fresh fixed rate, regardless of whether you need extra capital or not, is usually worth doing anyway. Adding the capital raising element onto that same remortgage becomes almost a free byproduct of a move you should be making regardless.
If the amount you want to raise is large relative to your existing mortgage, the maths can shift too. Raising £150,000 against an existing £100,000 mortgage is a different calculation to raising £30,000 against a £300,000 mortgage. When the new borrowing dwarfs the old balance, the cost of re-pricing the smaller existing chunk becomes far less significant.
In that first scenario, £150,000 raised against a £100,000 existing balance, even a modest ERC of 2% on the existing £100,000 is only £2,000, a relatively small amount set against £150,000 of new borrowing that will benefit from a first charge rate rather than a second charge rate. The maths tips firmly towards a remortgage in cases like this, particularly where the LTV after raising the funds still sits comfortably within mainstream lending limits.
Interest rates on secured loans are also, realistically, always going to sit above typical first charge mortgage rates. Second charge lenders are taking on more risk, sitting behind the first mortgage in terms of repayment priority, and price accordingly. If your existing mortgage rate is uncompetitive anyway, perhaps you're on a five year fix taken out when rates were unusually high, a remortgage that improves your rate on the whole balance while also raising capital can be the best of both worlds.
Credit profile matters here too. Some borrowers with adverse credit find secured loan lenders considerably more flexible than mainstream mortgage lenders, because second charge lending has historically been more accommodating of complex income, missed payments in the past, or self employed earnings that don't fit a standard affordability model neatly. For others, the opposite is true, and a specialist remortgage lender is the better fit. This is exactly the kind of judgement call that benefits from a proper conversation with a broker who can see both markets clearly.
How loan to value affects your options
Loan to value, or LTV, plays a big role in which route is realistically available to you and at what price.
With a remortgage, lenders will usually go up to 85% or even 90% LTV for standard cases, though rates get progressively less attractive as you push towards the top of that range. Secured loans can often go up to similar levels, sometimes higher with specialist lenders, but the pricing difference between an 60% LTV secured loan and an 85% LTV one can be substantial, often several percentage points.
As a rough guide, a secured loan at 60% LTV might come in at 7% to 8%, while the same lender's rate at 80% to 85% LTV on an otherwise identical case might sit at 10% to 12% or higher. That gap widens further still if you're pushing into 90% territory, which some specialist second charge lenders will consider but at a noticeably steeper price. Understanding roughly where your LTV sits before you start shopping around saves a lot of wasted enquiries to lenders who simply won't offer competitive terms at that level.
If your property has risen in value significantly since you took out your original mortgage, and many have over the last decade, your effective LTV on any new borrowing might be considerably lower than you think. A house bought for £280,000 five years ago that's now worth £380,000 gives you a lot more room to manoeuvre, whichever route you choose.
It's worth getting a realistic, up to date valuation before assuming either route is off the table. We see people rule out options based on out of date assumptions about their property's worth, when a current valuation would have opened up better rates or higher borrowing limits on both a secured loan and a remortgage.
This works both ways too. Some borrowers assume their property has risen in value in line with general house price indices, when in fact their specific type of property, perhaps a flat above a shop or a non-standard construction home, hasn't kept pace and their actual LTV is higher than expected. Getting a realistic figure before committing to a plan avoids nasty surprises partway through an application.
Fees, costs and the things people forget to add up
Beyond the headline rate and the ERC, there's a list of smaller costs that need factoring in properly on both sides of the comparison.
On a remortgage, expect to see a product or arrangement fee, typically anywhere from £0 to £2,000 depending on the lender and product chosen, sometimes added to the loan rather than paid upfront. There may be a valuation fee, though many lenders offer this free as part of the package. Legal fees for the remortgage conveyancing are often included free by the lender, but not always, so it's worth checking rather than assuming.
On a secured loan, arrangement fees typically run from 1% to 3% of the loan amount, sometimes higher for more complex or higher risk cases. There's usually a valuation fee, and sometimes a broker fee if you're using an intermediary, though many brokers, including us, are paid by the lender rather than charging the client directly. Legal costs for registering the second charge are typically lower than a full remortgage conveyancing process, since there's no need to redeem and reissue the first mortgage.
Broker fees, where they do apply, are worth clarifying upfront on either product. Some brokers charge a flat fee, others a percentage of the loan, and some charge nothing at all to the client, being remunerated instead through commission from the lender. Neither structure is inherently better, but it's a cost that should form part of your overall comparison rather than being treated as an afterthought once you've already chosen a lender.
One cost people frequently forget entirely is the exit fee or redemption administration fee, sometimes £75 to £300, charged by lenders on both products when you eventually pay the loan off or remortgage away. It's a small number in isolation but worth knowing about upfront rather than being surprised by it later.
Another commonly missed cost is the higher lending charge, which some lenders apply on remortgages above a certain LTV threshold, typically above 90%, as a form of insurance premium protecting the lender rather than the borrower. It's less common than it used to be but still worth ruling out specifically when comparing quotes at higher LTVs.
Adding all of this up properly, rather than comparing headline rates alone, is the only way to genuinely know which route costs less. This is precisely the calculation a good broker will run for you before recommending either path.
It's also worth factoring in the practical cost of your own time and hassle. A full remortgage typically involves more paperwork, a fresh affordability assessment, and often a longer timeline than a secured loan, which can sometimes complete in a matter of weeks. For some borrowers, particularly those raising funds for a time sensitive purpose such as a building project with contractors waiting to start, the speed of a secured loan is worth something in itself, separate from the pure cost comparison.
In practical terms, a straightforward remortgage might take anywhere from four to eight weeks from application to completion, depending on how quickly the new lender's underwriting and legal process moves. A secured loan, by contrast, can sometimes complete in two to four weeks where the case is straightforward and the paperwork is provided promptly, since there's no need to redeem an existing mortgage or wait on a chain of legal steps tied to a first charge transfer.
Affordability and how lenders assess each option
Affordability assessments differ between the two products in ways that catch some borrowers out.
A remortgage means a full fresh affordability check against current lending criteria, using today's stress tested rates and today's rules around income multiples. If your circumstances have changed since you took out your original mortgage, perhaps you've moved to self employment, taken on other debts, or your income has dropped, you might find you no longer qualify for the amount you need on a straightforward remortgage basis, even if your original mortgage was approved with no issues at all.
Stress testing in particular catches people out. Lenders don't just check whether you can afford the payments at today's rate, they check whether you could still afford them at a notionally higher rate, often several percentage points above the actual product rate. If your income has grown more slowly than your existing mortgage balance since you took it out, you might find the stress test bites harder than expected, even though your actual monthly payment would be perfectly manageable.
Secured loan lenders assess affordability too, but the criteria and approach can differ meaningfully from mainstream mortgage lenders. Some secured loan lenders take a more flexible view of self employed income, using different methods to calculate average earnings, or placing more weight on bank statements and business accounts rather than rigid payslip based multiples. Others specialise in cases with historic credit issues that would rule someone out of a mainstream remortgage entirely.
Because a secured loan only assesses affordability against the new borrowing rather than the combined mortgage and new debt together, some borrowers find they can raise more through a secured loan than a remortgage would allow, purely down to how the sums are structured for assessment purposes. This isn't universally true and depends heavily on the individual lender's criteria, but it's another reason the two routes shouldn't be dismissed as interchangeable.
This is a significant, often overlooked reason why a secured loan can be the only realistic option for some borrowers, regardless of the interest rate comparison. If you wouldn't pass a fresh affordability check with your existing lender or a new one, the remortgage route may simply not be available, making the entire rate comparison academic.
Equally, some borrowers assume their circumstances are too complex for mainstream lending and default to a secured loan without checking, when in fact a specialist remortgage product would have suited them perfectly well and at a lower overall cost. This is another area where a broker who has visibility across both markets, rather than specialising in just one, adds real value.
Business owners raising capital against commercial or residential property
For business owners, the secured loan versus remortgage decision often carries an extra layer of complexity, particularly where the property involved is either partly or wholly commercial, or where the funds raised are intended for business purposes rather than personal use.
Raising capital against a residential property to inject into a business is entirely possible through both routes, but lenders will want to understand the purpose of the borrowing, and some mainstream remortgage lenders are more cautious about business purpose lending than specialist secured loan providers who deal with this scenario regularly.
Documentation requirements also tend to differ. A remortgage lender assessing business purpose borrowing will often want to see recent business accounts, a clear explanation of how the funds will be used, and sometimes management information showing the business can service the debt in addition to the mortgage itself. Secured loan lenders working in this space are often more used to dealing with directors and business owners, and can sometimes move more pragmatically through this evidence gathering stage.
Where the security is a commercial property, such as an office, warehouse, or mixed use building, the product moves into commercial mortgage or commercial secured loan territory, with its own separate set of lenders, rates and criteria. The same underlying principle still applies though. Borrowing only against the new money needed, rather than re-pricing an entire existing commercial mortgage balance, is very often the cheaper route, particularly if the existing commercial mortgage carries penalties for early repayment.
Commercial mortgage ERCs can sometimes be structured differently to residential ones, occasionally running for the entire term of the loan rather than tapering down, which makes the case for a second charge commercial loan even stronger in some circumstances. It's always worth checking the exact terms of your existing commercial mortgage agreement rather than assuming it mirrors residential norms.
Directors raising money for stock, equipment, expansion into new premises, or bridging a cash flow gap while waiting on a large contract to pay out, frequently find that a secured loan against property, whether residential or commercial, is quicker to arrange and less disruptive than unwinding an existing commercial mortgage arrangement. Speed and certainty matter enormously in these situations, sometimes more than shaving off half a percentage point in rate.
For businesses with seasonal cash flow, such as those in construction, hospitality, or retail, the timing of when funds are needed can matter as much as the cost of borrowing itself. A secured loan that completes in three weeks rather than seven can be the difference between taking on a profitable contract and having to turn it down, which is a factor that's easy to underweight when comparing options on cost alone.
Practical steps to work out which route suits you
Rather than guessing, there's a sensible order of operations worth working through before committing to either route.
Start by calling your existing mortgage lender and asking two things directly: what is my current early repayment charge if I were to remortgage today, and do you offer further advances, and if so at what rate and on what terms. This single phone call rules in or out one of your three options immediately and costs nothing.
While you have your lender on the phone, it's also worth asking for a formal redemption statement rather than relying on a verbal estimate. Redemption figures can shift slightly depending on the exact date you'd complete, so having a written figure with a valid-until date gives you something concrete to work from rather than a rough approximation.
Next, get a realistic, current valuation of your property. Online estimate tools are a starting point but tend to be imprecise. A proper valuation, or at minimum a detailed estimate from a local estate agent who knows your area well, gives you accurate figures to work with for LTV calculations on both a secured loan and a remortgage.
Then work out exactly how much you need to borrow, and be honest about it. Borrowing extra as a buffer sounds sensible but adds cost on both routes, so it's worth pinning down a realistic figure for the project or purpose in question rather than rounding up generously.
If your capital need is tied to a specific project, such as building works, it can help to get a written quote from your builder or contractor first, rather than estimating the cost yourself. Lenders sometimes ask for this evidence anyway, particularly for larger secured loans, so having it ready in advance speeds up the whole process regardless of which route you choose.
With those three pieces of information in hand, a broker can run proper comparative figures across all three routes: further advance, secured loan, and full remortgage, including all fees and charges, over your intended repayment period. That comparison, done properly with real numbers rather than headline rates, is what actually tells you which option costs less.
A good comparison should show the total cost over a defined period, typically until the end of your current fixed rate term, factoring in every fee, every charge and the actual pounds and pence of interest on each route side by side. Ask to see this in writing rather than relying on a verbal summary, so you can review it properly before making a decision.
Finally, factor in your own priorities beyond pure cost. If speed matters because you have a building project starting imminently, that might tip the decision even if the cost difference between two options is marginal. If you're the type of borrower who values having everything consolidated into one single monthly payment and one single lender relationship, that might matter more to you than saving a few hundred pounds. There's no single right answer that applies to everyone, which is exactly why this decision benefits from proper individual advice rather than a generic rule of thumb.
