Second charge mortgages are secured loans taken out against the equity available in your current home. In simple terms, the equity on your property is the value of your property less any mortgage owed on it. For example, on a £300,000 house with an outstanding mortgage of £200,000, the equity (or the part which you own) would be £100,000. With a second charge mortgage you are borrowing against the £100,000 equity. Sometimes this is also referred to as having a second mortgage on a property.
Remortgaging is concerned with paying off an existing mortgage with a new mortgage arrangement – either from your existing mortgage provider or a new lender. This is very common and might be done for several reasons but principally it occurs when you reach the end of a current mortgage deal. If your current mortgage deal ends, your lender will move you to their standard variable rate (SVR); this is usually higher than other mortgage rates in the market. You can also use a remortgage for home improvements or for other large purchases. If you have a fixed rate mortgage, then you should check whether any early repayment charges will be incurred by remortgaging your current debt and taking on any additional borrowing. It may be cheaper to ask your current lender for a further advance. This runs alongside your existing mortgage and will have its own mortgage interest rate that is separate to your current mortgage.
You can look at a remortgage comparison by looking at our best mortgage deals.
Both types of mortgage are only available to homeowners.
For second charge mortgages, you will need to have a sum of equity in your property that is at least equal to the amount of the loan you intend to secure against it. For example, while you could ask for £25,000 loan against £100,000 of equity, you couldn’t borrow over £100,000. As this is a loan secured against your property (even if you don’t live there) you must keep up repayments or your home will be at risk.
A remortgage deal is typically for the whole amount of the existing mortgage and can be chosen from a range of existing products and deals from any lender. As with any mortgage, the money borrowed is secured against the value of your home, meaning you could be at risk of losing your property if you fail to keep up with payments.
Broadly speaking, second charge mortgages can be considered as ‘secured loans’ whereas a remortgage is concerned with the refinancing of an existing mortgage deal. While both are a good way of releasing extra funds against your property, it should be noted that the property you are financing against will be at risk of repossession if you do not keep up with your repayments.
The best option for you is influenced by several factors. For example, you may not want to remortgage your whole property due to having a lifetime tracker rate, or you may wish to have the additional borrowing on interest-only but want to continue to repay against your original mortgage. It could be that your personal circumstances have changed, making it harder to meet affordability requirements for a remortgage, or your credit score has dropped below your current lenders’ requirements.
Remortgaging on the other hand is primarily used to pay off an existing mortgage by moving to a better deal, either from your current provider or a new lender, but is also a great way to take advantage of a reduced monthly payment or to borrow some extra funds to carry out property improvements.
Make sure you organise a remortgage before your deal ends or you risk paying more on an SVR.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.