Raising Money on Your Home Without Losing Your Current Rate

You want to borrow against your home for an extension, a loft conversion, a tax bill, or to buy someone out. Five years ago the answer was simple: remortgage the lot. Now it often is not, because remortgaging means giving up a rate you will never see again.

At Drummonds Finance Group, this has become one of the most common conversations we have. If you are sitting on a fix at 2.4% and you need £40,000, moving your whole balance onto today's pricing to get it is an expensive way to borrow. There are two other routes, and which one wins depends entirely on the numbers.

Here is how the three compare, and how to work out which is cheapest for you.

The three routes

A full remortgage moves your entire mortgage, plus the money you want to raise, to a new lender at today's rates. Simple, one payment, and usually the best rate available on the whole balance. The catch is that it reprices everything, including the part you were perfectly happy with.

A further advance is additional borrowing from your existing lender, secured on the same property. Your main mortgage stays exactly where it is on its current rate, and the new money sits alongside it on its own rate and term. You end up with one lender and two sub-accounts.

A second charge is a separate loan from a different lender, sitting behind your existing mortgage on the property. Your main mortgage is untouched entirely. Rates are typically higher than a first charge, but the criteria are often more flexible and it can be arranged quickly.

What the difference actually costs

This is easier to see with figures than to describe.

Take someone with £250,000 outstanding on a fix at 2.4% running until 2028, 25 years remaining, who wants to raise £40,000 for an extension. Their current payment is around £1,109 a month.

Remortgaging the whole £290,000 at 5% over 25 years costs roughly £1,695 a month. That is £586 more, and only £40,000 of new money to show for it.

A further advance keeps the £250,000 at 2.4% and adds £40,000 at, say, 5.5% over the same term. The combined payment is around £1,355. That is £340 a month less than remortgaging, for the same money raised.

A second charge of £40,000 at 7% over 15 years would add around £360 a month, giving a total near £1,469. More expensive monthly than the further advance, but over a shorter term, so less interest overall on that portion.

These are illustrative and your own rates will differ. The point is the shape: preserving a cheap rate on the bulk of the debt usually beats getting a better rate on a small slice of it.

When each one wins

A full remortgage makes sense when your existing rate is no better than what is available now, when your deal is ending anyway, or when the amount you are raising is large relative to the existing balance. If you are already near the end of a fix, this is usually the cleanest answer.

A further advance tends to win when you have a genuinely good rate to protect and your existing lender will lend you the money. The limitation is that you are stuck with one lender's criteria and one lender's pricing, with no shopping around.

A second charge comes into its own when your existing lender says no, when your circumstances have changed since you took the mortgage, or when you need it done quickly. Second charge lenders often take a more considered view of adverse credit and of unusual income than mainstream first charge lenders will.

One route that is never the answer on its own: a product transfer. It only changes your rate and cannot raise a penny.

The early repayment charge question

If you are inside a fixed term, remortgaging away usually triggers an early repayment charge, often 1% to 5% of the balance. On £250,000 that can be £2,500 to £12,500, and it has to go into the comparison.

Further advances from your existing lender do not trigger it, because you are not leaving. Second charges do not either, because the first mortgage is untouched. That alone decides a fair number of cases.

A word on consolidating debt

A lot of capital raising is really about clearing credit cards or loans, and it deserves genuine caution rather than a disclaimer.

Moving unsecured debt onto your mortgage lowers the monthly payment, which is why it appeals. But it converts debt that was not secured on your home into debt that is, and stretching a three-year loan across a twenty-year mortgage term can mean paying considerably more interest overall even at a lower rate.

Sometimes it is still the right call, particularly where the monthly saving is what makes the household work. But it should be a decision made with the total cost in front of you, not just the monthly figure. Any adviser who presents it purely as a saving is not showing you the whole picture.

What lenders look at

All three routes assess affordability on the total borrowing, and all three need the property to be worth enough. Beyond that, the criteria diverge more than people expect.

Standard affordability often caps borrowing around four to four and a half times income, while some lenders will consider five or six times salary where the profile fits. On a capital raise, that can be the difference between funding the whole project and half of it.

Lenders also care what the money is for. Home improvements are straightforward almost everywhere. A tax bill, a business injection or a deposit for another property narrows the field considerably. And if you own the property outright, releasing money works differently again, which our unencumbered property page covers.

Frequently asked questions

Is a further advance cheaper than remortgaging?

Often yes, if your existing rate is well below current pricing, because you only pay today's rate on the new money rather than the whole balance. Where your existing rate is close to what is available now, a full remortgage usually wins.

Will raising money affect my existing mortgage rate?

Not with a further advance or a second charge. Your existing mortgage continues on its current rate and term. Only a full remortgage replaces it.

Are second charge rates much higher?

Typically yes, because the lender ranks behind your main mortgage and takes more risk. But on a small sum against a large protected balance, a higher rate on the slice can still be cheaper overall than repricing everything.

Can I raise money if my credit has got worse?

Possibly. Second charge lenders and specialist first charge lenders often take a more considered view than your existing lender will, particularly where the issues are historic and the conduct on the mortgage has been clean.

How much can I release from my home?

It depends on your equity, your income and the purpose. Most lenders work to a maximum loan-to-value and a maximum income multiple, and whichever bites first sets the ceiling.

Talking it through

We are a whole-of-market mortgage broker based in Oxfordshire, advising clients across the UK. On a capital raise the right answer is rarely obvious from the headline rates, and the only way to know is to compare all three routes against your actual balance, your actual rate and any early repayment charge.

If you are weighing this up, get in touch and we will work out which route leaves you better off.

Important risk warnings

Your home may be repossessed if you do not keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage

Think carefully before securing other debts against your home. The overall cost of repayment of other debts might be more when added to your mortgage. Your home might be repossessed if you do not keep up repayments on your mortgage