Borrowing money against your assets such as your house is called a secured loan. Typically, secured loans can be taken out by people who own assets, usually a property, but may not have a great credit rating.
Taking out a secured loan can keep your repayments and interest rates down in comparison to an unsecured loan. This is because a secured loan against your property poses less risk to lenders. If you take out a secured loan on your house, the loan is tied to your property so the lender can recoup their losses if you fail to keep up with repayments.
However, if you decide to buy and move to another property, the terms of your loan may be affected. Read our guide to find out how your loan term could change and what you need to do before you move.
Do I have to pay off a secured loan before I move house?
Yes, you will usually need to pay off your secured loan before you move house, however there are some lenders who may allow the loan to be transferred subject to the equity in the new property and affordability. Please ask for details.
There are several ways you can pay off your secured loan, including:
- Pay off the debts using proceeds from the sale of your home
- Pay off your secured loan outright before placing your house on the market
- Transferring debt to your new property
- Take out an unsecured loan to pay off your existing secured loan
Although you'll usually need to pay off any loan secured by your property before you move, you can put your house up for sale before your loan is paid off in full.
Paying off your debts from the sale of your house
Despite this common misconception, you can sell a house that’s on a loan agreement. Ideally, the sale of your house will bring in enough money to pay off whatever is left of your mortgage, plus any other secured loans on your property, so that everything is paid off before you move.
You must make sure the figures add up before placing your house on the market. For example, if you have £90,000 left to pay on your mortgage and have a secured loan against your house worth £15,000, you’ll need to make sure your property is likely to bring in £105,000 when sold. Don’t forget you will also need to allow for any solicitors’ or estate agents’ fees in your calculations. If the sale of your property isn’t going to cover your debts or is going to leave you struggling to buy somewhere new, then it’s not a financially viable option for you.
Also, check you won’t face any expensive, early settlement fees in paying your loan off before the agreed end date.
Pay your smaller secured loans outright before moving
If you’re able to do so without putting yourself into financial difficulty, it could be a good idea to pay off the remaining amount of your secured loan before placing your house on the market. This can put less pressure on the amount you need your house to sell for and could save you a lot of hassle later down the line by removing the need to transfer your debts or renegotiate the terms of your loan.
Again, make sure there aren’t any early settlement fees on your secured loan that could make it an unviable option before deciding to clear it early.
Transfer your debt to your new address
You may be able to alter the terms of your secured loan and transfer the debt to your new property. This could mean you avoid early settlement fees from paying off your loan early, but it can take a lot of work on your part to provide lenders with all the information they need to amend your deal.
Not all lenders will allow you to transfer your debt, so it’s important to check that it’s possible before you rely on it as a solution. Transferring your loan may also come with added admin fees for amending and updating your details and terms.
Pay off your secured loan using an unsecured loan
You could take out an unsecured loan and use the funds to pay your secured loan in full. Unlike secured loans against your home, unsecured loans aren’t tied to your property and can, therefore, move around with you. However, having an unsecured loan could affect your eligibility for a mortgage on your new property, so you’ll need to do some research or speak to a broker for advice beforehand. With an unsecured loan you’ll find the APR you’re offered is likely to be higher than the previous secured loan. This is because without the security of your home as collateral lenders view your application as a larger risk.
As with any method of paying your loan off early, you’ll need to check that you won’t be subject to any early settlement fees, as these can prove costly.
Does a secured loan affect your mortgage?
Securing a loan against your home won’t affect your mortgage unless you decide to move house. If your home is sold with existing credit, the money from the sale will always need to pay off your mortgage before any other outstanding debts you may have.
In some circumstances, you may be able to combine your secured loan debt into a remortgage deal if you need to borrow more money. However, your eligibility for one may be lowered by having the other. If you’re unsure whether combining your secured loans into your mortgage is the right option, speak to a broker or financial advisor.
Knowing what type of loan is right for you can be tricky, but we have plenty of advice and information on homeowner loans to help you make the right choice. If you need further assistance or have any questions, contact a member of our friendly team.