Second charge or remortgage: comparing the cost of borrowing more

A second charge mortgage can cost less than remortgaging when it lets you keep a low rate on a much larger existing balance. But separate loan fees, a higher rate on the extra borrowing and the repayment term can change the result. Neither route is automatically cheaper.

Compare the combined repayments, interest, fees and debt remaining over the same period. Both routes increase borrowing secured against your home. The two hypothetical examples below show why the cheaper option can change with your circumstances.

What changes when you choose a second charge or remortgage?

A second charge is a separate loan secured against your property, sitting behind your main mortgage. You keep the existing mortgage and add another secured payment. It doesn’t mean a mortgage on a second home.

When you remortgage with another lender, the replacement loan repays your existing mortgage. Additional borrowing can be included, subject to the lender’s assessment.

Feature	Existing mortgage plus second charge	Remortgage with additional borrowing
Existing mortgage	Remains in place	Repaid by the replacement mortgage
Extra money	Separate secured loan	Included in the replacement borrowing
Interest rates	Each loan has its own rate	New rate applies to the replacement balance
Repayment term	Each loan has its own term	Replacement borrowing has agreed repayment terms
Existing early repayment charge	Usually avoided by leaving that mortgage untouched	May apply if the existing mortgage is redeemed early

Changing to another product with your current lender is generally called a product transfer. Borrowing more from that lender is a further advance, which may be arranged alongside a rate switch.

Why can a higher-rate second charge still cost less?

The rate on the additional loan is only part of the comparison. If you owe £200,000 and need another £30,000, remortgaging could change the rate on all £230,000. A second charge would leave the existing £200,000 on its current deal.

Preserving a low rate on the larger balance may outweigh paying a higher rate on the smaller loan for a defined period. Avoiding an existing early repayment charge, or ERC, can also affect the calculation.

Second-charge rates tend to be higher than first-charge rates, as the FCA’s review of second charge mortgages explains. That doesn’t establish which complete borrowing arrangement will cost less for you.

One of the first things we’d check is how much of your borrowing would move onto a different rate, and how long your existing rate has left. Keeping a cheap deal for another two years is a different proposition from keeping it for two months.

Separate fees, repayment terms and the cost after your current deal ends all need consideration.

How do you compare the cost fairly?

Start by comparing options that provide the same amount of usable extra money. A £30,000 loan with fees deducted from it won’t leave you with £30,000 to spend.

Work through these steps:

1. Establish how much extra money you need after any deductions.
2. Record your existing balance, payment, remaining mortgage term, deal-end date and ERC.
3. Obtain rates, repayment terms and itemised fees for the available options.
4. Choose a common comparison period, such as the next two years.
5. Compare payments, interest, charges and remaining debt across all relevant loans.
6. Consider what happens when a deal ends, or when you expect to move or repay the borrowing.

Your mortgage term is the time allowed to repay the loan. A fixed-rate period is how long a particular rate lasts. A two-year fix on a 20-year mortgage doesn’t keep that rate for 20 years.

The lender’s mortgage illustration or European Standardised Information Sheet, known as an ESIS, sets out important repayment and cost information. Under the FCA’s ESIS rules, total-repayment figures involving future variable rates are illustrative and can change.

The annual percentage rate of charge, or APRC, incorporates relevant charges into a lifetime annual cost measure. Comparing the second loan’s APRC with the replacement mortgage’s APRC still leaves out your existing mortgage’s cost under the two-loan route.

You can estimate the combined monthly payment and compare it with replacing the full balance using our second charge mortgage calculator. Its results are estimates, rather than lender quotes or confirmation of eligibility, and they don’t capture every possible future cost.

Example 1: keeping a low mortgage rate

Suppose a homeowner owes £200,000 and needs another £30,000. Their existing rate is 2%, with 24 months left on the deal. Replacing that mortgage now would trigger a £4,000 ERC.

These are hypothetical figures, not market averages, available products or Monday Mortgages quotes.

For both examples:

• The existing mortgage has 20 years remaining.
• The second charge and replacement mortgage also have 20-year repayment terms.
• All loans use capital-and-interest repayments, with payments calculated monthly.
• The extra money received is £30,000 under either route.
• The comparison covers 24 months, with no overpayments.
• Setup fees and any existing ERC are paid separately upfront, not added to the loans.
• Setup fees represent all assumed transaction fees; no other charges are included.
• No sale or refinancing takes place at the end of month 24, so possible future exit charges aren’t included.

Here, the second-charge rate is 8%, with £2,500 in setup fees. The replacement mortgage is £230,000 at 5%, with £2,000 in setup fees plus the £4,000 existing ERC. All rates remain unchanged for the comparison period.

Measure	Keep mortgage plus second charge	Remortgage
Combined monthly repayment	£1,263	£1,518
Mortgage payments over 24 months	£30,305	£36,430
Upfront setup fees and existing ERC	£2,500	£6,000
Combined debt after 24 months	£212,081	£215,907
Interest over 24 months	£12,386	£22,336
Interest plus setup fees and existing ERC	£14,886	£28,336

Figures are rounded to the nearest pound after calculation. The combined payment includes both loans under the second-charge route.

Keeping the existing mortgage costs less over these two years under the assumptions shown. It also leaves less debt outstanding.

The £30,305 in mortgage payments isn’t all a borrowing expense: part repays capital. The final row isolates interest and the specified charges. It isn’t the total amount repayable over the mortgage term.

At month 24, the existing 2% deal ends. You’d need to assess the next rate and the options then available. This example doesn’t establish a lifetime saving or guarantee that both loans could later be combined cheaply.

Example 2: replacing a more expensive mortgage

Now suppose the existing £200,000 mortgage is on a 6% variable follow-on rate, with no ERC. The homeowner still needs £30,000 and has the same repayment terms and fee assumptions.

The second charge is again at 8%, with £2,500 in setup fees. The £230,000 replacement mortgage is at 4.5%, with £2,000 in setup fees.

All rates are hypothetical and held unchanged for the calculation. The existing variable rate could change in practice.

Measure	Keep mortgage plus second charge	Remortgage
Combined monthly repayment	£1,684	£1,455
Mortgage payments over 24 months	£40,411	£34,922
Upfront setup fees	£2,500	£2,000
Combined debt after 24 months	£217,671	£215,147
Interest over 24 months	£28,082	£20,069
Interest plus setup fees	£30,582	£22,069

Replacing the mortgage costs less over this comparison period and leaves less debt outstanding. There’s no cheap existing rate to preserve and no assumed ERC to pay.

However, the homeowner should also compare a current-lender product transfer and further advance where available. These tables show how two routes compare, rather than establish the most suitable option across every alternative.

Which fees and repayment terms can change the result?

Ask for a full breakdown of costs, including:

• Product or arrangement fees.
• Broker and any separate intermediary fees.
• Valuation, legal and administration costs.
• Existing mortgage exit fees and ERCs.
• Charges for repaying or overpaying the new borrowing early.

For each fee, check the amount in pounds, who receives it and when it becomes payable. The FCA’s second-charge review identified concerns about fee transparency, making this an important part of comparing offers.

The £2,500 setup cost is hypothetical. Check actual fees for the proposed transaction.

If fees are added to a loan, your secured balance increases and interest can be charged on them. We’d separate the amount you receive from the amount you borrow before comparing payments. Financed fees also need counting correctly, without adding them twice to a total-cost calculation.

Check the timing too. An existing ERC can depend on when your replacement mortgage starts, rather than when you begin reviewing your options. A second charge can have its own ERC period, which may end at a different time from your first mortgage’s deal.

A longer term can reduce payments while increasing interest

For a £30,000 repayment loan at a constant hypothetical 5%, excluding fees:

Measure	10 years	20 years
Monthly repayment	£318	£198
Total repayments	£38,184	£47,517

The lower payment comes with a longer period of interest. This is a mathematical illustration assuming the same rate throughout, rather than a forecast or an available product.

When terms differ between offers, compare the remaining debt as well as the monthly payment. A lower payment alone doesn’t show that you’re borrowing more cheaply.

What alternatives should you compare?

A second charge and remortgage aren’t the only additional borrowing options. The FCA’s mortgage disclosure rules identify further advances, alternative mortgage routes and unsecured lending as options firms must bring to customers’ attention in relevant cases. That doesn’t mean every adviser sources every type of credit.

A further advance from your existing lender may let you borrow more without replacing the main mortgage. The extra borrowing can have a separate rate and repayment term, subject to assessment.

A product transfer plus further advance may be worth comparing when your current deal ends. Switching the rate on existing borrowing doesn’t automatically approve the additional loan.

An unsecured personal loan avoids securing that borrowing against your home. Compare the available rate, term, monthly payment and total cost, subject to eligibility. A shorter term may mean higher payments but less time paying interest.

Waiting or using some savings may be possible if the spending can be delayed until an ERC ends. Consider the purpose of the funds and the cash buffer you’d need to retain. Future rates aren’t guaranteed.

If the money is for debt consolidation, securing previously unsecured debts against your home changes the risk. Extending the repayment period can also increase the overall cost. The FCA’s debt-consolidation rules require advisers to consider these issues where relevant, including whether negotiating with creditors would be more appropriate for someone having payment difficulties.

What should you have ready for an advice conversation?

Gather your latest mortgage statement, current rate and payment, remaining term, deal-end date and ERC details. You’ll also need the amount you want to borrow, its purpose and an estimated property value.

Income, household expenditure and existing commitments matter too. Having equity in the property doesn’t establish that extra borrowing is affordable or suitable.

Tell the adviser about plans to move, overpay or repay either loan. We’d want to compare the cost at the point you expect to review or repay the borrowing, as well as the payment you can manage now.

A review of your remortgage options can help establish whether changing the existing mortgage is worth the cost, alongside the alternatives available for your circumstances.