There is more than one way to increase your mortgage lending
If you have a need to raise extra mortgage funds against your home, for example for home improvements or to consolidate other debt, there are a number of ways you can achieve this.
Each method has its own advantages and disadvantages and it is worthwhile considering all options to obtain your funding.
Which options should you consider when raising additional funds:
- Do you have your mortgage on the property currently?
- Is your mortgage rate one you would not wish to lose?
- Are there heavy redemption penalties for redeeming your mortgage?
- Is your main objective to consolidate debt?
- Have you had recent problems with paying your debts?
- Do you have an interest only mortgage you wish to keep?
Re-mortgaging is perhaps the first option that borrowers consider when looking to borrow more funds on a mortgage.
A re-mortgage involves borrowing funds from a new lender to pay off your existing lender and in the process leaving a little leftover for other purposes.
When to re-mortgage
You should consider a re-mortgage if the mortgage rates you are currently on are no longer competitive or suitable for you, and there are attractive options elsewhere. In some cases your existing lender will not consider the level of lending you require and this is another situation where a re-mortgage may be appropriate.
When re-mortgages should be avoided
Early redemption penalties – if your existing mortgage carries an early redemption penalty it can be expensive to redeem and therefore you should consider keeping it in place.
Attractive current rate – if like many borrowers you took your rates several years ago when it was based on a small margin above Bank of England base rate it can now be very competitive. If you re-mortgage you would lose this rate, so it’s a good reason to stay with your current lender.
Interest only lending – if you have an interest only mortgage currently and you wish to keep this type of arrangement, it is extremely unlikely that a re-mortgage will be your appropriate solution.
If re-mortgaging is not your preferred option, read on for other possibilities.
A further advance is obtained from your current mortgage lender to top up your existing mortgage.
When to consider a further advance:
Obtaining a further advance does not reduce any benefit in your current mortgage and therefore may be an option for borrowers who wish to avoid re-mortgaging.
When a further advance may not work for you:
Further advance rates may not be attractive, and your lender may not consider allowing you to raise extra funds on your property.
What are secured loans?
A secured loan, or second charge loan, is a loan secured against your property whilst keeping your current mortgage in place.
When to consider a secured loan
Secured loans can be suitable when your main mortgages are on an attractive rate that you do not wish to lose or there are redemption penalties you wish to avoid. Since secured loan underwriting is more flexible than standard mortgage underwriting, secured loans may be an option where your lender says no to a further advance.
Secured loan rates are much more competitive than they have been in the past and typically only carry one month’s interest as a redemption penalty.
Acceptable purposes for secured loans
- debt consolidation
- home improvements
- business investments
- investment in property
- tax bills
- purchase of land
- deposits to help children or other family to purchase a home
- school fees
- cosmetic surgery
- holiday homes
- homes for students
- university costs
Secured loans and your main mortgage lender
Secured loans are secured against your property on what is known as a second charge. This means that your first or main mortgage lender has first call on the funds when your property has sold, and your secured loan lender has second call on the funds. Once these are repaid, the balance of the value of your property comes back to you.
The vast majority of mortgage lending in the UK is held by either the Halifax Bank of Scotland group, Santander and Barclays Woolwich. Other major mortgage lenders are Nationwide Building Society and RBS/NatWest. All of these lenders will allow you to put second charge against your property.
When a secured loan may not be appropriate
If a re-mortgage or further advance is available to you at a more attractive rate, this may be a better option than a secured loan.
How we help
At A Mortgage Now we appreciate that borrowing additional funds against your home (or indeed an investment property), is not a decision to be taken lightly. Therefore, we help you consider all the options available to you to decide the best way forward.
As well as providing whole of market independent advice on mortgages, we also have access to all the primary secured loan lenders in the market to give you a wide range of choice and options.
We can help you explore the advantages and risks of each potential solution to get you the best deal possible.