4 minutes
4 minutes
4 minutes
4 minutes
to read
to read
to read
to read
Sunday 22 December 2024
Sunday 22 December 2024
Sunday 22 December 2024
Sunday 22 December 2024
If you’re tied into a mortgage product with a competitive rate and don’t want to pay early repayment charges (ERCs) or exit fees, there are alternative options to consider depending on your financial needs. Let’s explore some of these options and the factors to keep in mind.
Raising Capital Without Remortgaging
If your goal is to raise capital but you’re tied into a competitive rate or face high ERCs, here are some alternatives:
Further Advance
This involves borrowing additional funds from your current lender as a top-up to your existing mortgage. The additional borrowing is usually set up as a separate product with its own terms and rate.
Key Considerations:
Aligning the new product’s term with your existing mortgage can simplify future remortgaging.
For example, if your current mortgage has three years remaining, a three-year fixed rate for the top-up might be preferable. Alternatively, if your existing deal has only nine months left, a tracker product with no ERCs could be a better choice.
Further advances typically carry lower rates and fees compared to other borrowing options. However, the longer terms often associated with these advances can significantly increase the total amount payable.
Example Comparison:
Borrowing £30,000 over six years at 6.75% interest could result in monthly payments of approximately £507.88, with a total repayment of £36,567.10.
The same amount borrowed over 25 years at 4% interest would result in monthly payments of £158.35 but a total repayment of £47,505.32.
Second Charge Mortgage
A second charge mortgage involves borrowing from a new lender who secures the loan against your property as a second charge. This means the original lender is paid first if the property is sold, followed by the second charge lender.
Key Considerations:
Fees are typically higher, including valuation and solicitor fees.
Interest rates on second charges are generally higher due to the increased risk for the lender.
Loan-to-value ratios are often more restrictive.
Second charge mortgages are ideal if you want to retain your current mortgage rate or avoid high ERCs while raising funds.
Bridging Loans
Bridging loans are short-term loans designed to “bridge” a financial gap, such as completing essential property works or purchasing a property while awaiting the sale of another.
Key Considerations:
They’re typically short-term (1–2 years) and come with higher costs and risks.
A clear exit strategy, such as remortgaging or selling the property, is essential.
Example Use:
If your property needs urgent repairs to make it habitable, a bridging loan could finance the works until the property can be sold or remortgaged.
Not Ideal For:
Non-urgent home improvements or situations where future affordability is uncertain.
Managing Costs Without Remortgaging
If your primary concern is reducing monthly costs and you’re in financial difficulty, some options might be worth discussing with your lender:
Extending the Mortgage Term: Lengthening the term of your mortgage can reduce monthly payments but will increase the total amount payable over the life of the loan.
Payment Holidays: Temporary payment breaks might be available, though interest will continue to accrue, increasing the total amount payable.
Reverting to Interest-Only Payments: Switching to interest-only payments for a period can lower your monthly commitment but will extend the repayment period and total cost.
These options can provide temporary relief but come with long-term financial implications. It’s crucial to fully understand these consequences before proceeding. Our advisors can help you evaluate these options and guide you toward the best solution.
Choosing the Right Option
Each of these alternatives has its pros and cons. Factors such as your financial goals, current mortgage terms, and long-term plans will influence the best choice for you.
How We Can Help
Comprehensive Evaluation: We’ll assess your financial situation and goals to recommend the most suitable option.
Clear Guidance: Our team explains the implications of each choice, helping you make an informed decision.
Support Throughout: From initial discussions to securing the funds you need, we guide you every step of the way.
Final Thoughts
Whether you’re looking to reduce costs or raise capital, there are alternatives to remortgaging that can help you achieve your goals without losing a competitive mortgage rate or incurring high ERCs. Contact us today to discuss your options and let us help you find the best solution for your needs.
Please note: For commercial lending, bridging finance, and second charge loans, we refer clients to trusted third-party specialists.
If you’re tied into a mortgage product with a competitive rate and don’t want to pay early repayment charges (ERCs) or exit fees, there are alternative options to consider depending on your financial needs. Let’s explore some of these options and the factors to keep in mind.
Raising Capital Without Remortgaging
If your goal is to raise capital but you’re tied into a competitive rate or face high ERCs, here are some alternatives:
Further Advance
This involves borrowing additional funds from your current lender as a top-up to your existing mortgage. The additional borrowing is usually set up as a separate product with its own terms and rate.
Key Considerations:
Aligning the new product’s term with your existing mortgage can simplify future remortgaging.
For example, if your current mortgage has three years remaining, a three-year fixed rate for the top-up might be preferable. Alternatively, if your existing deal has only nine months left, a tracker product with no ERCs could be a better choice.
Further advances typically carry lower rates and fees compared to other borrowing options. However, the longer terms often associated with these advances can significantly increase the total amount payable.
Example Comparison:
Borrowing £30,000 over six years at 6.75% interest could result in monthly payments of approximately £507.88, with a total repayment of £36,567.10.
The same amount borrowed over 25 years at 4% interest would result in monthly payments of £158.35 but a total repayment of £47,505.32.
Second Charge Mortgage
A second charge mortgage involves borrowing from a new lender who secures the loan against your property as a second charge. This means the original lender is paid first if the property is sold, followed by the second charge lender.
Key Considerations:
Fees are typically higher, including valuation and solicitor fees.
Interest rates on second charges are generally higher due to the increased risk for the lender.
Loan-to-value ratios are often more restrictive.
Second charge mortgages are ideal if you want to retain your current mortgage rate or avoid high ERCs while raising funds.
Bridging Loans
Bridging loans are short-term loans designed to “bridge” a financial gap, such as completing essential property works or purchasing a property while awaiting the sale of another.
Key Considerations:
They’re typically short-term (1–2 years) and come with higher costs and risks.
A clear exit strategy, such as remortgaging or selling the property, is essential.
Example Use:
If your property needs urgent repairs to make it habitable, a bridging loan could finance the works until the property can be sold or remortgaged.
Not Ideal For:
Non-urgent home improvements or situations where future affordability is uncertain.
Managing Costs Without Remortgaging
If your primary concern is reducing monthly costs and you’re in financial difficulty, some options might be worth discussing with your lender:
Extending the Mortgage Term: Lengthening the term of your mortgage can reduce monthly payments but will increase the total amount payable over the life of the loan.
Payment Holidays: Temporary payment breaks might be available, though interest will continue to accrue, increasing the total amount payable.
Reverting to Interest-Only Payments: Switching to interest-only payments for a period can lower your monthly commitment but will extend the repayment period and total cost.
These options can provide temporary relief but come with long-term financial implications. It’s crucial to fully understand these consequences before proceeding. Our advisors can help you evaluate these options and guide you toward the best solution.
Choosing the Right Option
Each of these alternatives has its pros and cons. Factors such as your financial goals, current mortgage terms, and long-term plans will influence the best choice for you.
How We Can Help
Comprehensive Evaluation: We’ll assess your financial situation and goals to recommend the most suitable option.
Clear Guidance: Our team explains the implications of each choice, helping you make an informed decision.
Support Throughout: From initial discussions to securing the funds you need, we guide you every step of the way.
Final Thoughts
Whether you’re looking to reduce costs or raise capital, there are alternatives to remortgaging that can help you achieve your goals without losing a competitive mortgage rate or incurring high ERCs. Contact us today to discuss your options and let us help you find the best solution for your needs.
Please note: For commercial lending, bridging finance, and second charge loans, we refer clients to trusted third-party specialists.
