When you need to raise money against your property but already have a mortgage, two options exist: remortgage the whole debt, or take a second charge mortgage behind the existing one. The right choice depends primarily on your current mortgage's early repayment charge (ERC) and how long remains on your fixed term.
How Each Works
Remortgage
- Repays and replaces the existing mortgage
- May trigger early repayment charges
- Single loan, single monthly payment
- Potentially better rate on the whole debt
- Slower - takes 4–12 weeks
- All credit assessments done fresh
Second Charge
- Sits behind the first mortgage - doesn't disturb it
- No ERC on the existing mortgage
- Two monthly payments
- Higher rate than first charge (but may be net cheaper)
- Faster than a full remortgage
- Regulated differently (Consumer Credit Act)
When a Second Charge Wins on Cost
| Option | ERC | Rate on New/Additional Borrowing | Monthly Cost (additional) | Net Cost Advantage |
|---|---|---|---|---|
| Remortgage whole £400k | £9,600 | 4.8% on £400k | N/A - whole payment changes | - |
| Second charge (£80k) | £0 | 7.5% on £80k | £500/mo | Save £9,600 ERC upfront |
When Remortgaging Wins
Remortgaging makes more sense when:
- Your fixed term is ending or has ended (no ERC applies)
- Your current mortgage rate is above current market rates
- You want a single, simpler payment structure
- The amount you need to raise is large relative to the existing balance
- You have improved your credit profile since the original mortgage
Second Charge: Speed and Credit
Second charge mortgages can complete faster than a full remortgage - typically 4–6 weeks versus 8–12 weeks. They also go through a different underwriting assessment from the first mortgage lender. This means a change in employment status or credit profile since your original mortgage doesn't affect your existing deal.
Regulatory Difference
Both products are FCA regulated, but second charge mortgages are regulated under the Consumer Credit Act as well as MCD (Mortgage Credit Directive) rules. This means different disclosure requirements and slightly different affordability assessments than a standard remortgage.