Re mortgage on a debt free property or go for a loan

bean36

I have a second property with no mortgage thata relative lives in. I need to raise 20k to clear some debt so is it best to get a mortgage on this second proeprty or a loan ?

holly_hobby

Residential mge interest rates will be lower than that of personal unsecured lending - which will of course be academic if you take any mge borrowing over a longer term than a PL, as the overall amount of interest incurred will be obviously higher

However, there are a variety of lenders that have a min initial mge of 25k - min initial term generally 5 yrs (although there are ways to manage this i.e offset or immediate lump sum reduction of 5k subject to any ERP).

Remortgage of an unencumbered property, you won't be elibible for any fee free remortgage deals, and debt consolodation may be an issue at the level reqd on a unit which is also not your primary residence.

Obv its a given that your income will have to be sufficient to svc the mge taken on your 2nd home, and the mge on your current home and all other commitments.

Additional possible issues are the property not being your primary residence, but occupied by a relative (rent free I assume).

Given all of the above, I would suggest speaking to a whole of market broker whom will give you an idea as to which lenders may be the market for you and your requirements.

Of course if there isn't any mge lender in the mix, and if a competitive interest rate is sought, you may wish to consider a secured loan over a personal one (not forgetting that a mge is in effect just a secured loan .. so don't be too frightened by the term "secured".

However you need to bare in mind that a secured loan means that they will register a charge against the property, much the same as a mge.

On an unencumbered property this will obv take 1st charge position, meaning that you will be prevented from later effecting a additional residential/semi comm mortgage (if you don't intend to simultaneously redeem any secured loan). This is because all mge lenders demand 1st charge, and if there is already an existing charge that won't be redeemed on completion, they will decline to lend.

Hope this helps

Holly