Further Advance Mortgages

For example, you want to decorate the property you bought but are currently short of funds.

When researching what you can do, you might come across the term further advance mortgages. You can borrow an extra amount from your existing mortgage lender.

But is it a good idea? In this article, we will demystify further advanced mortgages and help you understand the details of the concept.

What Are Further Advance Mortgages?

A further advance mortgage is an additional amount you borrow from your existing mortgage lender. This advance is usually issued at a rate different from your existing mortgage because it is selected from mortgage products that are available currently rather than your existing product. 

A further advance mortgage is a good option if your lender’s rates are competitive and you don’t want to switch lenders, for example, there might be current early repayment charges.

Situations In Which You Might Opt For A Further Advance Mortgage

Two of the most common scenarios when you can take out a further advance mortgage is:

• If you want to fund home improvement or renovation
• If you’re looking to get deposit money for a second property
• You are looking to complete some debt consolidation for unsecured debts. 

Taking a further advance mortgage may make more sense than a personal loan in such cases. You may be able to spread the repayments for example over a longer term, and interest rates may be lower than a personal loan. Of course, this will be on a case-by-case basis. 

Advantages And Disadvantages of Further Advance Mortgages

Further advance mortgages often offer lower and more manageable interest rates than credit cards and personal loans (continue reading for comparison), making it a potentially attractive option. 

But, it’s crucial to weigh the advantages and disadvantages before proceeding.

Advantages

• Faster processes that can be completed sometimes as quickly as a week
• Lower interest rates than credit cards or personal loans in many cases. 

Disadvantages

• You’re putting your home at risk in case you default on payments as it is secured debt whereas credit cards & personal loans are unsecured debt. 
• It might also affect your ability to remortgage/move home in the future as you have less available equity. 
• In case the term on the further advance is longer than your existing mortgage, it can increase the length of time in which you are repaying your mortgage in its entirety. 

What Are The Eligibility Conditions For Further Advance Mortgages?

The eligibility conditions for further advance mortgages vary among lenders, but common criteria include:

• The ownership type needs to be standard usually
• There shouldn’t be more than two applicants
• The mortgage account shouldn’t be in arrears
• All documentation is up to date
• The original mortgage application should be at least 6 months prior to the application for the advance
• The current mortgage should be paid using direct debit 
• A good credit rating

It’s important to note that these are general criteria, and individual lenders may have additional requirements.

Purposes You Can Use The Advance Amount For

Although home improvements and deposits are the common purposes of getting an advance, there are other reasons for which you can take one:

• Paying educational fees
• Divorce settlements
• Purchasing a vehicle

The reason for the further advance/additional borrowing must be permitted as acceptable within the lender’s criteria.  

How To Get A Further Advance Mortgage

The typical process to get a further advance mortgage looks like this:

• Contact your mortgage lender with the proposal
• Understand advance offers and fees
• Get your property professionally valued, as this will determine the amount you can borrow. Often if it is with your existing lender they may have an automated valuation figure so a physical valuation may not need to be completed. 
• You’ll need to go through affordability checks for the advance amount. 
• Finally, accept the offer made by your lender

Keep in mind that such offers are usually valid for 6 months from the date of offering. Once again, this is individual lender dependant. 

Remortgage with capital raising

If you need to increase your loan amount but also want to switch lenders entirely, you can opt for a remortgage with capital raising. 

This effectively means that while remortgaging, you increase the mortgage amount as part of the process.

You might actually be able to find a lender with a lower interest rate for example so it makes sense to switch. This way, even though the mortgage amount increases, your monthly payments might not.

Be advised that remortgaging may involve extra fees, which should also be factored into the total cost you have to bear.

Product Transfer With The Same Lender

But what if you don’t want to change the lender or capital raise but want to opt for a different mortgage deal?

Then, you can opt for what is called a product transfer. However, this won’t allow you to alter the mortgage amount as mentioned.

So, why is this beneficial? Well, even though you’re not directly getting more money, a product transfer can be used to save money as the new deal may offer a lower interest rate and it may result in you not going on the standard variable rate (SVR), which is usually higher than the set available mortgage products offered by lenders. 

If the new deal gives you a better rate, you might be able to bring down the monthly payments and save up the amount you need in the first place rather than raise capital.

What Are Second Charge Mortgages?

A second-charge mortgage is another method used in which you can borrow money against your home. 

This is not related to your existing mortgage but is a separate loan from a different provider that uses equity on your property as a security.

A second charge mortgage can only be taken out with a lender different from your primary lender, and you’ll need to prove you can repay both. 

Also, you must get permission from your primary lender to apply for this type of loan so this may cause complications.

Advantages Of A Second Charge Mortgage

• Helps you avoid early repayment penalties that might come into the picture while remortgaging
• Spread out over an extended period, so less monthly burden than, for example, many personal loans

Disadvantages Of Second Charge Mortgages

• Higher interest rates (usually as compared to regular mortgages) as they rank second behind the primary mortgage. 
• Can hinder future remortgaging/moving home as less available equity. 
• Property at risk of being lost in case of payment failures

Further Advance Mortgage vs A Personal Loan: Which Is Better?

There’s no clear answer to this, as it depends on various factors. But let’s try to illustrate with an example.

Suppose you’re borrowing an amount of £ 5,000. For a longer-term deal, like a further advance mortgage, at the rate of 6% over 20 years, you’d have to pay back £ 8,488 (approx.). This means a total interest of £ 3,488.

On the other hand, if you borrow the same amount as a personal loan at 12% over a three-year period, you’d have to pay back around £ 5,926. So you end up paying just £ 926 as interest.

Which should you choose? Common sense says the second one, as you have to pay a lower amount of interest. 

But it will mean higher monthly repayments, and if you’re not in a position to afford that, you might be forced to go for the first option.

At the end of the day, it depends on your needs and situation.

However, please bear in mind importantly, further advances are secured debts so your home could be lost in the event of default. Personal loans are unsecured, so this facet must also be considered in your thinking. 

Frequently Asked Questions (FAQs)

1. Are There Additional Fees Associated With Getting A Further Advance Mortgage?

There may be fees associated with a further advance mortgage, such as arrangement fees and valuation fees. It’s advisable to read the terms and conditions of the ket carefully features illustration before proceeding.

2. Is It Possible To Apply For A Further Advance Mortgage With A Bad Credit Rating?

It will definitely be tougher to obtain a further advance mortgage with a bad credit rating. However, with the help of an expert mortgage broker, you might be able to find the right deal. But it might mean higher interest rates.

Additionally, many specialist lenders you may use if you have bad credit may not allow a further advance facility. 

3. Can I Repay A Further Advance Mortgage Early?

Yes, you can repay a Further Advance Mortgage early, partially or in full, depending on your lender’s terms and conditions. However, it’s essential to check if there are any early repayment charges associated with doing so.

4. Can I apply for a Further Advance Mortgage if I’m in arrears with my current mortgage?

You’ll unlikely be approved for a Further Advance Mortgage if you’re in arrears with your current mortgage. Lenders typically require borrowers to be up to date with their mortgage payments and demonstrate financial stability before considering additional borrowing.

If you can’t afford the mortgage, how could you afford a further advance? 

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.