Fixed term mortgage holders should opt for a secured loan to bypass redemption charges, according to secured loan broker Click.
Redemption penalties affect homeowners who want to free up capital from their properties before their fixed term mortgage is up.
Steve Teague, chief executive of Click, says: “With the recent encouragement for lenders to launch 25 year fixed deals, secured loans are set to be the best route for those clients wanting to bank their property’s capital without losing their shirts on the mortgage deals."
Secured loans allow borrowers to arrange sums from £30,000 to over £100,000 while most unsecured loans only allow the borrower up to £25,000.
Teague says: “Secured loans can also save the borrower a sum of money in the longer term. For example, a client borrowing £25,000 over 25 years who re-mortgages would be landed with a total amount payable of £49,197 – based on borrowing at a fixed rate of 6.19%.
“However, that same £25,000 borrowed over 10 years as a secured loan would equate to a total amount payable of £36,398 based on 8.0% APR – this gives a saving of nearly £13,000 over the loan period.”
Teague says IFAs can arrange secured loans from 6.5% depending on the client’s credit score, amount of loan and length of time the loan is taken over.
Teague says: “Compare this with the cost of taking out a standard variable rate mortgage at current rates, arrangement fees and exit penalties to get out of the old deal, and it can be a win win situation for broker and client alike.”
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