When you want to raise money on a home you already own, two routes come up again and again: remortgage the whole thing and borrow more, or take a second charge mortgage alongside your existing deal. They can both put cash in your pocket, but the cost and the consequences are very different. Here is how to tell which one is right for you.
The two ways to raise money on your home
- Remortgage. You replace your entire mortgage with a new, larger one, either with your current lender or a new one, and take the extra borrowing as cash. One lender, one rate, one payment.
- Second charge. You leave your current mortgage exactly as it is and take a separate loan behind it from a different lender. Two lenders, two rates, two payments. See our guide to what a second charge mortgage is for the full picture.
When a second charge wins
A second charge is often the cheaper or the only option in these situations:
- You are on a cheap fixed rate. If your main mortgage is locked on a low rate, remortgaging the whole balance could mean giving it up. A second charge raises the extra money while protecting the deal you already have.
- Your exit penalty is large. If remortgaging now would trigger a hefty early repayment charge, a second charge can work out cheaper overall, because you only borrow the extra rather than refinancing the lot.
- Your circumstances have changed. If your income has dropped, you have recently gone self employed, or you have had a credit blip, a mainstream remortgage may decline you. Second charge lenders are often more flexible, which we cover in secured loans when you are self employed or have bad credit.
- You need it quickly. A second charge can sometimes be arranged faster than a full remortgage.
When a remortgage wins
- Your deal is ending anyway. If your fixed rate is about to finish, you are going to be looking at new deals regardless, so rolling the extra borrowing into a remortgage usually makes more sense. See what happens when your fixed rate ends.
- You want one payment and one rate. A remortgage keeps everything in a single mortgage rather than juggling two loans.
- Your finances are healthy. If your income and credit are strong, the whole market is open to you, and a remortgage rate is usually lower than a second charge rate.
- You have plenty of equity. More equity unlocks the lowest loan to value deals, and the savings can outweigh the cost of refinancing.
The early repayment charge question
This is often the deciding factor. If you are tied into a deal with a penalty for leaving early, paying that charge to remortgage can wipe out any saving. A second charge sidesteps it, because your first mortgage stays put. Work out the penalty first, then compare. Our guide to early repayment charges explains how to find yours.
Do not forget the third option
Before you choose between a second charge and a remortgage, it is worth asking your current lender about a further advance, which is extra borrowing from the lender you already have. It is often the cheapest route of the three when it is available. We compare them in further advance or second charge.
How to actually compare them
Do not just compare headline rates. Add up the total cost of each option over the period you expect to keep it, including all fees and, for a remortgage, any early repayment charge on your current deal. A slightly higher second charge rate can still beat a remortgage once the penalty is counted, and the reverse is true just as often. The only way to know is to put the real numbers side by side.
This is exactly the comparison a whole of market broker is built for. Debbie at DS Financial can line up a remortgage, a second charge and a further advance together so you can see which genuinely costs you least. For more, read our remortgage guide and product transfer vs remortgage.
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.