If you are on a low fixed rate, the last thing you want to do is lose it. The good news is that in many situations, you can raise funding without altering your main deal. We will now cover the basic options, when they work best, and what to look out for.
Second Charge Basics
A second charge is a newly secured loan against your home, which sits behind your existing mortgage. You will keep your existing deal, and all of the new borrowing will have its own rate and term. The extent of each loan depends on income, outgoings, credit history and loan-to-value (LTV) status. Read more on this page.
If your main mortgage has a considerable early repayment charge or your situation is a bit peculiar, this is another route to consider. Because it is secured, you may benefit from a longer term and larger amounts than any unsecured option, while keeping your cheap core rate.
Keep My Rate?
Yes – that’s the main benefit. No changes will happen to your fixed rate, and only the new borrowing will, as each one will be separate. Remember, your common day-to-day payment is for the main mortgage, while the additional funding is a separate loan
A reputable mortgage broker will be able to compare ‘second charge’, ‘further advances’ and other alternatives in one go. A specialist such as 1st UK Secured Loans will point out what the lenders have to quirks, documentation checklists, and maybe you can dodge repeated costs.
Further Advance or Loan?
A further advance will be borrowing more money from your existing lender; a second charge is borrowing from a different lender, but more is over and above your mortgage, either can make sense depending on price, speed, and the lenders criteria. Both options can work, with the correct choice intended on price, speed, the lenders criteria. You can check your lender’s guide, check the fees and before agreeing on a choice.
When you are thinking of choosing an option, you will be focusing on flexibility, the overall total cost over the term, and most importantly how soon you want the cash. After an easy affordability check you could then identify both routes and see which one nearer fit your plans.
- Further advance: stays with your existing lender, may be close to your existing rate (at same), but it may take longer and be more rigid.
- Second charge: much broader choices of lenders and can be quicker at processing but the rate is likely to be more than your main mortgage and its RMP likely means it is flexible to difficult income.
When Not to Remortgage
When your fixed rate is far away in today’s market, taking out a full remortgage may be too expensive. It may impact early repayment charges and moving all your borrowing to likely an increased rate. In many cases it may be better to have a second charge or further advance, allow you to keep your fantastic main deal, but unlock the money, (and often called equity release when being used for home improvements, development and projects).
Visit https://en.wikipedia.org/wiki/Equity_release to know more about this.
You may also choose not to remortgage if you are mid-renovation, just gone self-employed, or very close to the end of your product. Timing always matters, and lender’s want fully functioning cases/stable cases with a full loan switch deal.
Fees and Risks
Any borrowing secured on your home should always be planned. Always take a view of the total cost of borrowing rather than paying attention to the monthly payment. At any time, you may have a lower payment but if it means you are extending the term—depending on the purpose of the loan, you may have ended up paying more/nearly 2x the interest in the end with debt consolidation for example.
Prior to signing, always ask for a simple summary of the fees in plain-speaking English, and an example of what it actually costs in £ across the term.
If it does not stack in your favour, consider saving longer, or reducing your loan size.
- Typical costs: lender arrangement fee; broker fee; valuation fee; legal costs; and any potential group exit costs—possibly a currency-free early settlement fee, or discharge costs for single groups later.
- Rate type: some second charges are variable so always ensure you check when and how they make changes to the lenders rates.
- Term length: longer term = lower payments possibly more interest total payable.
- Security: you are borrowing money secured on the assumed value in your property. Missing a payment can led to arrears, and in worse cases repossession. Should be taken nowhere near lightly as your main mortgage.
If used sensibly, a further advance or second charge can allow you unlock a valuable or valuable investment and keep your low fixed-rate debt. Overall, my recommendations would be always considered both options, take advice, and consider your plans of action with what option you select, and keeping your budgeting intact today, and your budgeting tracked in the future.