secured or personal loan?

Twinlakes

Hi all, 

our current mortgage deal (i think the rate is 4.5%) ends: feb 2021

early repayment charge: £6500

total household income: £51k / year

we have credit cards repayments currently, always pay on time monthly without any problem. 

We need to raise £35k. Out of which £15k needed ASAP (to pay back a loan borrowed from family) + £20k (needed not urgently is for essential house improvement) 

we have two options: 

1. £30-35k secured loan- 3000 fees, 5.4% rate but affordable monthly repayments... more likely to get approved as have massive equity in the house
2. £15k 7 year personal loan- no guarantee  if will be able to get it or at what interest rate. monthly repayments will high!  

which option will you go for?? cheers in advance!!!  

[Deleted User]

The one with the lowest overall cost and most flexibility in repayments.

lopsyfa

If you need to borrow anything at all, it should be the 15k. This is not the best time to borrow any non-urgent loan with the state of the economy. Plus I doubt you will find anyone willing to carry out the home improvement for you. Even if you do, I don't think this is the best time to have people carrying out work in your house with the risk of cross infection. 
If you borrow the extra 20k and leave it in your account, you may be tempted to spend some or all of it on something else.
 You will likely get a personal loan of 15k at comparable rate to the secured loan and maybe even cheaper when you factor in the secured loan fees. This depends on how good your credit report is and your other debt commitments.
In the mean time, save the extra money you will be paying for the home improvement loan somewhere until the coronavirus situation blows over and use that to carry out the most essential part of the home improvement and then decide whether you still want to borrow more for the remaining work.

Twinlakes

lopsyfa said:

If you need to borrow anything at all, it should be the 15k. This is not the best time to borrow any non-urgent loan with the state of the economy. Plus I doubt you will find anyone willing to carry out the home improvement for you. Even if you do, I don't think this is the best time to have people carrying out work in your house with the risk of cross infection. 

Thinking of getting it done after the corona situation, but need to decide now (in advance) if £20k should be borrowed or not. 

DCFC79

Twinlakes said:

lopsyfa said:

If you need to borrow anything at all, it should be the 15k. This is not the best time to borrow any non-urgent loan with the state of the economy. Plus I doubt you will find anyone willing to carry out the home improvement for you. Even if you do, I don't think this is the best time to have people carrying out work in your house with the risk of cross infection. 

Thinking of getting it done after the corona situation, but need to decide now (in advance) if £20k should be borrowed or not. 

Its possible you could be waiting a long time for the end of the virus in the UK.

Using a secured loan is risky as your home will be at risk so use 1 at your peril.

Twinlakes

risky if we lose jobs?  because we have secure jobs. or it’s risky as it will cause problems remortgaging as our fixed deal runs out next year?   

sasha20

If you are looking to borrow just the £15k and your credit profile is decent, you may find yourself qualifying for loans as low as 3 to 4% if you get in before the banks/lenders tighten up their lending in the next few days.

If you're looking for £35k, you are less likely to get it with the combined household income - if you don't have much other debt, there is a chance that each of you could get a £17k/£18k unsecured loan and you could check by doing a soft check through one of the big comparison websites - won't hurt anything.

If you don't qualify for unsecured, I'd definitely consider waiting. February 2021 is not that far given the current situation and I'm not sure there's such a thing as a "secure job" in the current environment so if you don't absolutely need to spend the £20k, I'd definitely be holding on instead.

[Deleted User]

Twinlakes said:

risky if we lose jobs?  because we have secure jobs. or it’s risky as it will cause problems remortgaging as our fixed deal runs out next year?   

And you have adequate insurance should one of you, god forbid, become too ill to work and need to take an extended period of time off work so that the mortgage will still get paid along with all your other priority bills?

In the mortgage market lenders are pulling products right, left and centre.  Those products which remain require a 40% LTV or better.  How much equity do you currently have in your home?  I imagine lenders offering secured loans or second charge mortgages are doing similar.  Having a second charge may also cause you an issue should you remortgage in 2021.

As for personal loans I can only imagine lenders are tightening up their lending criteria as more and more people start to default or request payment holidays.  If you do need to borrow money then at least unsecured debt won't risk the roof over your head should you find yourself defaulting and I would seriously reconsider borrowing more money for home improvements at this time.  As someone else has already mentioned, it's not like you will be able to get any tradespeople during the lockdown for anything other than an emergency.

Does the family member need the loan repaid in one go?  Could you pay it off monthly or increase any payments you are making now instead?

Clive_Woody

£35k borrowing on a £51K household income is high (folk have often said you will struggle to get a loan above 50% of income...there are exceptions where this has happened). You mention credit card repayments - are you paying the balance off in full every month or is it minimum payments every month - if so what kind of cc balance do you have outstanding? Any overdrafts or other loans?

As others have said, if the £15k is the urgent need then I would apply for a loan for this amount, pay off your family debt then overpay this loan as much as possible. I would say leave the home improvements for now, or consider if they can be broken down into smaller jobs that you save up for and avoid debt.