House Doctor: 'Does having a secured loan mean we can't move house?'
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Your support makes all the difference.Question: Does a secured loan we took out on our house mean we can't put it up for sale? We really need to move for extra space but are worried we'll have to stay put until the loan is paid off, which is in about three years' time according to our repayment schedule. Our mortgage is about £145,000 on a two-bed home and the secured loan (with a different lender) is around £12,000
Joy Eviston, Newport
Answer: Debt may be a universal personal finance tool but, as you've discovered, not all loans are equal. Unlike "unsecured" personal loans taken out by millions to pay for a car or holiday, secured loans – often used to buy the very same things – are so-called because they're taken out or "secured" against a major asset, usually a property.
And although you don't say what interest rate you are paying, they are usually higher than those on the high street, with harsher penalties for defaults, too, as borrowers tend to have less credit-worthiness. However, despite their name, you may be able to legitimately loosen the secure loan and move on.
Your first option, says David Hollingworth at broker London & Country, is to see if you would make enough money from a sale to solve your problem in one stroke.
For example, if your home is worth £250,000 – giving you a decent loan-to-value (LTV) of 60 per cent – and sells at that price, this would leave you with some £93,000 for a chunky deposit for your next home after you pay off the secured loan – assuming no hefty early settlement fees – and your mortgage.
If the numbers don't add up, says Gavin Brazg at property advice website www.theadvisory.co.uk, then ask if you can transfer the loan to your next house, though there may be a fee and not all lenders will allow this.
The third, albeit unpalatable, choice is to take out an unsecured personal loan to pay off the £12,000. In this scenario, you'd need to check the exact size of any early settlement fees and compare the monthly cost of a new unsecured personal loan versus your old secured loan.
However, the new personal loan will count against you in your new mortgage application and with high rates may not make financial sense. If this is the case, and the previous alternatives are ruled out, your only option is to wait until you've managed to make all your repayments.
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