If you want to borrow more against a home you already own, there are three routes: a further advance from your current lender, a second charge from a different lender, or a full remortgage. This guide focuses on the first two, how a further advance and a second charge compare, and when each is the cheaper choice.
What is a further advance?
A further advance is extra borrowing from the lender you are already with. You keep your existing mortgage and they lend you more on top, usually on a separate rate that can differ from your main deal. Because the lender already knows you and already holds the first charge, it is often the simplest and cheapest way to raise money, when it is available.
What is a second charge?
A second charge is a separate loan from a different lender, secured behind your existing mortgage. Your current deal stays exactly as it is, and the new lender takes a second charge over the property. Our guide to what a second charge mortgage is explains it in full.
When a further advance is best
- Your current lender will lend you more, at a fair rate.
- You want to keep everything with one lender and one point of contact.
- Your circumstances are straightforward and your lender is happy to proceed.
When all of that lines up, a further advance is usually the lowest cost route, because there is no second lender pricing in the extra risk of sitting behind someone else.
When a second charge is best
- Your lender declines the further advance, caps how much you can have, or restricts what it can be used for.
- Your lender is slow, and you need the money sooner.
- You want to protect a cheap first mortgage rate that a further advance might disturb.
- Your income or credit has changed and your current lender will not increase your borrowing, but a specialist second charge lender will. See secured loans when self employed or with bad credit.
When a remortgage beats both
If your current mortgage deal is ending, or you have strong equity and finances, a remortgage can be cheaper than either, because you reach the whole market for one combined loan. The catch is the early repayment charge if you leave a deal early, and the loss of a cheap fixed rate. Our guide to second charge vs remortgage walks through that decision.
A simple way to think about it
Start with the cheapest possible route and work outwards. Ask your current lender about a further advance first. If they say no, or the rate is poor, or you would lose a good deal, price a second charge. If your deal is ending anyway, compare a remortgage against both. The right answer is whichever costs least over the time you expect to keep the borrowing, once every fee and penalty is counted.
This is the same three way choice landlords face when funding energy efficiency work, which we set out in how landlords can fund EPC C upgrades. The principle is identical for any homeowner raising money.
A broker can run all three options at once and tell you which wins for your situation. If you want that done properly, Debbie at DS Financial can compare them with you. See also our remortgage guide.
General information, not financial advice. A second charge mortgage or secured loan is secured against your home, which may be repossessed if you do not keep up the repayments.
Sources: MoneyHelper, Second charge mortgages, FCA, Mortgages.