How to raise additional funds without automatically replacing a low fixed rate.
If you need to raise money against your home, remortgaging is not your only option. You may also be able to take a further advance from your existing lender or arrange a second charge mortgage alongside your current mortgage.
This matters if your existing mortgage has a low fixed rate. A full remortgage replaces that mortgage with a new deal, so the new rate applies to your entire remaining balance as well as any extra borrowing. A second charge leaves the existing mortgage in place and applies a separate rate to the additional amount.
Neither route is automatically cheaper.
Compare the rate, term, monthly payment, fees and total amount repayable under each option.
Your existing deal and future plans will affect the result.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
Check your eligibility and get a quote.
Your main options
The main routes are a full remortgage, a further advance from your current lender and a second charge mortgage from another lender. A mortgage adviser can compare the available products and their total costs.
| Factor | Full remortgage | Further advance | Second charge |
|---|---|---|---|
| What happens | Your current mortgage is repaid and replaced. | Your current lender adds a separate tranche of borrowing. | A separate loan is secured behind your first mortgage. |
| Existing rate | Lost when the old mortgage is repaid. | Normally retained on the existing balance until that deal ends. | Normally retained on the existing balance until that deal ends. |
| Rate on extra borrowing | The new rate applies to the full new mortgage. | A separate rate normally applies to the extra amount. | The second charge rate applies to the extra amount. |
| Early repayment charge | May apply if you leave during an ERC period. | Usually not triggered, but check the existing terms. | Usually not triggered, but check the existing terms and any lender requirements. |
| Points to compare | New rate, fees, ERC and total cost. | Availability, separate rate, fees and total cost. | Rate, term, fees, two repayments and total cost. |
A simple example
Suppose a homeowner has £200,000 remaining on a fixed rate of 1.89% and wants to borrow another £40,000.
- With a full remortgage, the new mortgage would cover £240,000, and the new rate would apply to the full amount.
- With a further advance, the £200,000 mortgage would remain in place while the additional £40,000 would usually have its own rate and terms.
- With a second charge, the £200,000 mortgage would remain in place and the separate £40,000 loan would have its own rate, term and monthly payment.
This example only explains how the borrowing is structured. It does not show which option is cheaper. A fair comparison would need the remaining term, all available rates, fees, early repayment charges, monthly payments and total amounts repayable.
When a second charge mortgage may be worth considering
Keeping the existing mortgage in place
A second charge mortgage sits alongside your existing mortgage. The original mortgage normally continues under its current terms, including its existing rate until the applicable fixed period ends. You then make a separate monthly payment for the second charge.
Depending on the lenders and the terms of your first mortgage, consent or notification may be required. Your adviser should confirm this before you proceed.
Avoiding an early repayment charge on the first mortgage
Leaving a fixed or discounted mortgage early can trigger an early repayment charge. Taking a separate second charge would not normally repay the first mortgage, so it would not normally trigger that charge.
The second charge may have its own early repayment charges or other fees. These should be included in the overall comparison.
Using a different lender assessment
A second charge lender may assess your income, property equity and circumstances differently from your existing lender. This can be useful if a further advance is unavailable or does not meet your borrowing needs.
All regulated lenders must still complete an affordability assessment. Having substantial equity does not remove the need to show that the repayments are affordable.
Consolidating unsecured debts
Some homeowners use a second charge mortgage to repay credit cards or personal loans. The secured rate may be lower than the rates on those debts, which could reduce the monthly payment.
A lower monthly payment does not necessarily mean a lower overall cost. Extending the repayment period can increase the total amount repaid, and moving unsecured borrowing onto your home increases the risk if you cannot maintain repayments.
Which option could suit you
A second charge mortgage may be worth exploring if:
- you have a low fixed rate that still has time to run;
- a full remortgage would trigger a significant early repayment charge;
- your current lender cannot offer a suitable further advance;
- the total cost compares favourably after rates, terms and fees are included;
- you can afford the additional monthly payment.
A full remortgage may be more suitable if:
- your current deal is ending soon;
- there is no early repayment charge or it is outweighed by the benefit of the new deal;
- the available remortgage terms produce a lower overall cost;
- you prefer one mortgage and one monthly payment.
A further advance may be more suitable if your current lender offers the amount you need on competitive terms and you want to leave the existing mortgage in place.
Frequently asked questions
Does a second charge mortgage change my existing mortgage?
Your existing mortgage normally remains in place under its current terms. You take on a separate secured loan and an additional monthly payment. Depending on the lenders and your mortgage conditions, consent or notification may be required.
Will a second charge trigger an early repayment charge?
Taking a separate second charge would not normally repay your first mortgage, so it would not normally trigger its early repayment charge. The second charge may have its own early repayment terms.
How much could I borrow?
This depends on your income, expenditure, credit profile, property value, existing mortgage balance and the lender’s criteria. Lenders consider the combined loan to value across both mortgages and complete a full affordability assessment.
Are second charge mortgages regulated in the UK?
Regulated second charge mortgages are overseen by the Financial Conduct Authority and are subject to mortgage conduct, disclosure and affordability requirements.
What is the difference between a second charge mortgage and equity release?
A second charge mortgage normally requires regular monthly repayments and sits behind an existing first mortgage. A lifetime mortgage is a form of equity release intended for later life. It generally allows interest to roll up without mandatory monthly repayments, although product structures vary. Eligibility and age criteria depend on the provider.
Compare the complete cost before deciding
The best option depends on the products available to you and the complete cost over the period you expect to keep the borrowing.
Compare the monthly payments, rates, fees, early repayment charges and total amounts repayable before deciding.
Speak to a suitably qualified mortgage adviser for a recommendation based on your circumstances.
Beagle Finance is a trading style of Simple Financial Planning Ltd. We are authorised and regulated by the Financial Conduct Authority and act as a broker, not a lender.
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Risk warning
Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
If you consolidate existing borrowing, you may extend the repayment term and increase the total amount you repay. This article is for information only and does not constitute financial advice.
Beagle Finance is a trading style of Simple Financial Planning Ltd, incorporated in Scotland under company number SC457259. Simple Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority, reference 617941. Simple Financial Planning Ltd is a broker, not a lender.