Remortgage vs Second Charge Loan: Choosing the Right Way to Raise Funds
- Ben Stephenson
- Aug 4
- 8 min read
Updated: 4 days ago
Raising money against your home can unlock projects and possibilities, from extensions and loft conversions to consolidating expensive borrowing. The two mainstream routes are remortgaging your existing loan, or taking a second charge mortgage alongside it.
Both use your property as security, but they work differently and can cost very different amounts over time. Picking the wrong route can be expensive, so let’s break down how each option works, when one tends to beat the other, and how to decide with confidence.
What is a second charge loan and how does it work?
A second charge mortgage is a separate, additional loan secured on your property. Your original mortgage remains in place as the first charge. The new lender takes the second charge, which means they are second in line if the property is sold to repay debts. Practically, this gives you two secured loans at the same time, usually with different rates and terms.
You will need sufficient equity. For example, if your home is worth £300,000 and you owe £200,000 on your first mortgage, you have £100,000 equity. A second charge lender might allow you to borrow a portion of that, subject to their maximum combined loan to value. Many second charge lenders prefer the total of both loans to stay below a certain combined LTV, often around 75 to 85 per cent, with the sharper pricing at lower LTVs.
Key things to know: second charge loans generally carry higher interest rates than first mortgages because the lender sits behind your main lender. Some allow interest-only repayments on the new borrowing, which can keep monthly payments down, but means the capital must be repaid later. You will also need consent from your first mortgage lender for the second charge to be registered.
What is a remortgage and when do people use it?
A remortgage replaces your current mortgage with a new one. You can switch to a new lender or stay with your existing lender on a new deal. If you want to raise funds, you apply for a mortgage larger than your current balance and release the difference as cash. Your old mortgage is repaid and you carry on with a single new loan.
Homeowners remortgage to avoid reverting to a high standard variable rate, to secure a better interest rate, or to release equity for projects such as home improvements. If you are still inside a fixed or discount period, you may face early repayment charges, so timing matters. If you’re near the end of your deal, remortgaging is often the simplest, lowest cost way to borrow more.
What are the key differences between remortgage and second charge?
Structure: Remortgage means one new mortgage replaces the old. Second charge adds a new, smaller secured loan alongside your existing mortgage.
Interest rates: First mortgages typically have lower rates. Second charges are often higher because the lender is second in line.
Fees and penalties: Remortgaging can trigger early repayment charges if you leave a deal early. A second charge avoids disturbing your main mortgage, which can be useful if your current deal is excellent or has big penalties.
Monthly payments: Remortgaging gives one combined payment. A second charge means two payments. Some second charges allow interest-only on the extra borrowing, lowering monthly cost but deferring capital repayment.
Eligibility and flexibility: If your income or credit has changed, you might struggle to remortgage the whole balance at a good rate. A second charge can sometimes be more flexible for the extra borrowing only.
Convenience: One mortgage is simpler to manage. Two loans add complexity but can be strategically useful if your existing deal is too good to lose.
When might a second charge loan be better than remortgaging?
There are clear scenarios where the second charge route can save money or hassle.
You have a superb existing rate you do not want to lose. If you’re on a very low tracker or fixed rate, remortgaging now could raise the rate on your entire balance. A second charge lets you keep the cheap main mortgage and only pay a higher rate on the extra funds.
Your current deal has a large early repayment charge. Leaving mid-fix could cost thousands. A second charge avoids that penalty and can be cheaper overall, even if the second charge rate is higher, because you only pay it on the smaller top-up amount.
Your circumstances have changed. If you are newly self-employed, your income has reduced, or you have a few credit blips, a full remortgage might be hard or expensive. A second charge lender may still lend the additional amount you need if the equity and affordability stack up.
You want different terms on the extra borrowing. Perhaps you want a short, fast-clearing loan for a specific project, or interest-only on the top-up for a period. Keeping the first mortgage as is and tailoring the second loan can suit these aims.
Case study, second charge made sense: Martin has £180,000 remaining on a mortgage fixed at 1.8 per cent until 2026, with a £5,000 early repayment charge. He needs £30,000 for home improvements. Remortgaging now would mean paying the penalty and moving the full £210,000 to a higher rate. Instead, he keeps the 1.8 per cent mortgage untouched and takes a second charge for £30,000. The second charge rate is higher, but only applies to the new borrowing. His monthly budget stays comfortable, he avoids the penalty, and he plans to review everything when his main fix ends.
When is remortgaging the smarter choice?
Remortgaging remains the default route for many borrowers, especially when:
You are at the end of your deal or have minimal penalties. If you can switch without a big early repayment charge, a remortgage can consolidate everything into one lower rate than a typical second charge.
You want the lowest possible rate on all your borrowing. First mortgages tend to be cheaper than second charges. If no major penalty applies and you can secure a competitive new deal, putting the entire sum on one mortgage is usually more cost-effective.
Your profile is strong. If your income, employment and credit remain solid, you can shop the market widely and access competitive remortgage products, sometimes with incentives such as free valuations or legal work.
You want a single long-term structure. Larger sums for longer periods often fit better into a single mortgage at a mainstream rate, avoiding the complexity of two loans.
Alternatives with your current lender exist. A further advance can sometimes be cheaper and simpler than either a remortgage to a new lender or a second charge with a new lender. It keeps everything under one roof, though pricing and criteria vary.
Pros and cons at a glance
Remortgage, potential advantages:
One loan, one payment, simpler to manage.
Access to lower first-charge rates if eligible.
Good for larger, long-term borrowing.
Opportunity to reset term and structure.
Remortgage, potential drawbacks:
Early repayment charges if you are mid-deal.
If rates are higher now, you could raise the rate on your whole balance.
You must re-qualify for the full amount under current criteria.
Extending the term can increase total interest over time.
Second charge, potential advantages:
Keep a low-rate first mortgage untouched.
Avoid early repayment charges on the main loan.
Flexible for borrowers whose circumstances changed.
Option to tailor terms on the extra borrowing, including interest-only in some cases.
Second charge, potential drawbacks:
Typically higher interest rate than a first mortgage.
Two loans to manage, added complexity.
Fees still apply, and you need consent from the first lender.
Converting short-term debts to long-term secured borrowing can increase overall interest and risks the home if repayments are missed.
How should you decide between the two in practice?
Use a simple framework:
Check timing and penalties. Are you inside a fixed or discount period, and what is the early repayment charge? A large ERC often points to second charge or further advance.
Compare rates today versus your current deal. If your main rate is extremely low, preserving it can outweigh the higher rate on a smaller top-up.
Assess affordability with two payments. Ensure the combined outgoings of first mortgage plus second charge are comfortable, including stress testing for potential rate rises.
Set a time horizon. If you only need the top-up for a few years, a targeted second charge may work. If this is long-term borrowing, a remortgage may be cleaner and cheaper.
Look at alternatives. Further advance, personal loan for smaller sums, or delaying until your fix ends might beat both options.
Model total cost, not just monthly. Add up fees, interest over the period you expect to hold the debt, and any penalties avoided or incurred.
How does a mortgage broker help you make the right call?
A skilled broker runs the numbers both ways so you do not overpay through guesswork. Specifically, a broker will:
Analyse your existing mortgage terms, penalties and remaining fix period.
Source competitive remortgage options and second charge options side by side.
Quantify the true cost in pounds and pence, including fees, penalties avoided, and interest over time.
Align the structure to your aims, for example short targeted borrowing for a project versus long-term consolidation.
Manage paperwork, liaise with lenders and valuers, and keep the process on track.
Provide regulated, impartial advice, so the recommendation suits your circumstances, not a product push.
At Manor Mortgages Direct, we have nearly three decades of experience helping clients navigate these choices and a 4.9 Google rating that reflects the clarity and care we bring to each case.
FAQs
Is a second charge mortgage safe? It can be appropriate when used carefully, but like any secured borrowing your home is at risk if you fail to repay. Make sure the combined debt is affordable now and in the future.
Will a second charge stop me remortgaging later? It does not stop you, but any future remortgage lender will factor the second charge into affordability and loan to value. When your main deal ends, you can often review whether consolidating makes sense.
What if I only need a small amount of money? For smaller sums, consider whether a personal loan or a further advance might be cheaper and simpler. Secured borrowing should not be your first resort for short-term or modest needs.
Can I get a second charge with imperfect credit? Possibly. Some providers are more flexible for smaller, secured top-ups than for full remortgages, but the rate may be higher. Affordability and equity still matter.
How fast can I complete? Timeframes vary. Second charges can sometimes be arranged in weeks. Remortgages also vary depending on valuation and legal work. A broker can help you pick the route that meets your deadline.
Is equity release the same as a second charge? No. Equity release is a specialist later-life product with no monthly repayments in many cases. A second charge mortgage is conventional secured borrowing with monthly payments.
Conclusion: Which route is right for you?
If you can switch without large penalties and qualify for a competitive new deal, remortgaging is often the simplest and cheapest way to raise funds. If you would lose a very low rate or face heavy early repayment charges, a second charge can be the smarter short- to medium-term solution, especially for targeted projects or where your circumstances have changed.
Because your home is on the line and small differences in rates, fees, and timing can add up to thousands, getting clear, impartial advice is worth it. Manor Mortgages Direct has guided homeowners through markets high and low for nearly 30 years, with a 4.9 rating on Google, and we would be happy to map out the numbers with you so you can decide confidently.
Written by Ben Stephenson, CeMAP-qualified Mortgage Broker, Manor Mortgages Direct.