Understanding the Two Options
Before comparing the two options in detail, it is helpful to understand exactly what each one involves:
Remortgaging means replacing your existing mortgage with a new mortgage deal. This can be with your current lender (often called a product transfer) or with a different lender entirely. When you remortgage, you can often borrow additional funds on top of your existing mortgage balance, rolling everything into a single loan with one monthly payment.
The new mortgage takes a first legal charge on your property, and your previous mortgage is paid off and discharged. You start fresh with a new rate, term, and repayment schedule.
A second charge mortgage is an entirely separate loan that is also secured against your property, but it sits behind your existing mortgage. Your first mortgage remains completely untouched, with the same rate, term, and monthly payment. The second charge mortgage has its own interest rate, its own term, and its own monthly payment. You end up with two separate secured debts on the same property.
The critical difference is priority: if the property were ever sold or repossessed, the first charge mortgage would be repaid first, and the second charge lender would be repaid from whatever remained. This additional risk for the second charge lender is why second charge mortgage rates are typically higher than first charge rates.
Both options are regulated by the Financial Conduct Authority (FCA), meaning you benefit from the same consumer protections regardless of which route you choose.
Side-by-Side Comparison
The following table summarises the key differences between remortgaging and taking out a second charge mortgage:
| Feature | Remortgage | Second Charge Mortgage |
|---|---|---|
| What happens to your existing mortgage | Replaced with a new deal | Remains unchanged |
| Number of monthly payments | One | Two (first mortgage + second charge) |
| Interest rates | Typically lower (first charge rates) | Typically higher (second charge rates) |
| Early repayment charges on current deal | May apply if in a fixed/discounted period | Not triggered as current deal is untouched |
| Impact on current mortgage rate | You lose your current rate | You keep your current rate |
| Typical completion time | 4 to 8 weeks | 2 to 6 weeks |
| Affordability assessment | Full assessment required | Full assessment required |
| Maximum LTV | Up to 90-95% | Combined LTV typically up to 75-90% |
| Legal costs | Often free (lender incentives) | Usually payable by borrower |
| Flexibility for adverse credit | More restrictive criteria | Often more flexible criteria |
This table provides a general overview, but the best option for you depends on the specific numbers involved. A broker can run the calculations based on your exact circumstances and show you which route offers the lower total cost of borrowing.
When Remortgaging Is the Better Option
Remortgaging is often the more cost-effective choice in the following scenarios:
Your existing deal has ended: If your fixed or discounted rate period has expired and you have moved onto your lender's standard variable rate (SVR), you are almost certainly paying more than you need to. Remortgaging to a new competitive deal, while raising additional funds at the same first charge rate, is likely to be the cheapest overall option.
No early repayment charges apply: If you can leave your current mortgage without incurring ERCs, remortgaging avoids the higher interest rates associated with second charge lending. Even if there are small ERCs, the savings from a lower first charge rate may outweigh the penalty.
You want a single monthly payment: Remortgaging consolidates everything into one loan with one payment, which many borrowers find simpler to manage. There is no need to track two separate debts with different rates and terms.
You have a strong credit profile: First charge mortgage lenders typically offer the most competitive rates to borrowers with clean credit histories. If your credit is in good shape and your income is stable and verifiable, you are likely to access better rates through a remortgage than a second charge mortgage.
You want to borrow a larger amount: While second charge mortgages can provide substantial sums, remortgaging may give you access to higher LTV ratios and larger amounts, particularly through mainstream lenders.
It is worth noting that remortgaging does involve a full application process, including a new affordability assessment under current lending criteria. If your circumstances have changed significantly since you took out your original mortgage, you may not qualify for the deal you want.
