£40,000 Raised While Keeping a Fixed-Rate Mortgage

A recent case handled by David Singh CeMAP, Specialist Mortgage Advisor at Ezra Finance, shows how a second charge mortgage can meet an immediate borrowing need without disturbing an existing fixed-rate mortgage.

The client wanted to raise £40,000 for home improvements and to consolidate expensive credit card borrowing. The aim was to reduce monthly outgoings while keeping a recently arranged first-charge mortgage in place.

What did the client need?

The funds were required for a garden-based improvement project and debt consolidation. The application also needed to be structured in one applicant’s sole name because only that person was named on the existing mortgage.

This meant the solution had to accommodate the current ownership and mortgage position while supporting the household’s longer-term plans.

Why wasn’t the obvious option suitable?

A remortgage might normally be considered when a homeowner needs to raise capital. In this case, however, the existing first-charge mortgage had only recently been placed on a five-year fixed rate.

A further advance was not available, while replacing the mortgage would have triggered early repayment charges and meant giving up the existing deal.

The solution

David arranged a £40,000 sole-applicant second charge mortgage. This separate loan was secured against the property while the existing first-charge mortgage remained unchanged.

The structure enabled the client to fund the planned home improvements, consolidate higher-interest credit card borrowing and avoid the early repayment charges that could have arisen through remortgaging.

The outcome and longer-term plan

Consolidating the credit card borrowing significantly reduced the client’s monthly repayments. This refers to the monthly payment position rather than a confirmed reduction in the total amount repayable, which can increase when borrowing is secured or repaid over a longer term.

Both the first-charge mortgage and the second charge were arranged on five-year fixed rates. When those fixed periods end, the clients intend to review their options. Subject to affordability and lending criteria at that time, their aim is to consider a new first-charge mortgage that could incorporate the second charge and support a joint application.

Could this solution help?

A second charge mortgage may be worth considering when a homeowner needs to raise capital but does not want to replace an existing fixed-rate mortgage. It can also provide an alternative where a further advance is unavailable.

It will not be suitable for everyone. The interest rate, fees, borrowing term, affordability and total amount repayable should all be considered carefully against the available alternatives.

Contact Ezra Finance Today

If you or your client needs to raise capital without disturbing an existing mortgage, contact Ezra Finance to discuss whether a second charge mortgage could be appropriate.

Your home may be repossessed if you do not keep up repayments on your mortgage or other loans secured against it. Think carefully before securing other debts against your home. Consolidating debt may reduce monthly payments but could increase the total amount repayable.