If you’re looking to raise capital from your property—perhaps to invest in your business, fund a development, or consolidate debt—you might assume remortgaging is your best option. But in many cases, a second charge loan could be the smarter choice.
In this blog, we’ll explore what second charge loans are, how they differ from remortgaging, and the scenarios where taking out a second charge might make more financial sense.
What Is a Second-Charge Loan?
A second charge loan is a type of secured loan that sits behind your existing mortgage. It allows you to borrow against the equity in your property without changing your main mortgage.
This means you can keep your current mortgage deal—especially useful if you’re on a low fixed rate or have early repayment charges.
How It Differs from Remortgaging
Remortgaging involves replacing your current mortgage with a new one, either with your existing lender or a new one. It may unlock better rates, but it can also trigger penalties or reset your mortgage term.
Second-charge loans, on the other hand, are separate facilities. You’ll make two monthly payments—one for your mortgage, and one for the second charge—but you retain your original mortgage terms.
When a Second-Charge Loan Makes More Sense?
There are a few key scenarios where a second-charge loan can be the better route:
- You’re on a great mortgage rate: If your current mortgage is locked into a low fixed rate, remortgaging could mean losing that deal. A second charge lets you raise funds without touching it.
- You’d face high early repayment charges: Many mortgages come with penalties for exiting early. A second charge avoids those fees.
- You need funds quickly: Second charge loans can sometimes be arranged faster than a full remortgage, especially with a specialist lender.
- Your credit has changed: If your credit score has dipped since you took out your original mortgage, remortgaging could mean a worse rate. A second charge loan can be tailored separately.
- You’re borrowing for business or investment: Some lenders are more flexible on second charge lending for commercial purposes.
Why It’s Important to Get Advice
Second-charge loans aren’t right for everyone. They often come with higher interest rates than a traditional mortgage, and you’ll have two monthly repayments to manage.
A good mortgage advisor will help you weigh up the pros and cons based on your specific needs. At Cotterell & Cotterell, we guide clients through both options, ensuring the finance fits both their short-term goals and long-term strategy.
📞 Thinking of raising funds without disrupting your mortgage? Contact us today, and we’ll help you explore your options.
