What Homeowners Need to Know About Further Advance Mortgages

As a homeowner, you may find yourself in need of additional funds for home improvements, debt consolidation, purchasing a second property, and other expenses. A further advance mortgage can be a great option for securing this additional borrowing and, if you’re making energy efficiency improvements, you may even be able to secure green additional borrowing, which lets you borrow additional money at lower interest rates than your current mortgage.

In this article, we will take a closer look at further advance mortgages, including what they are, how they work, how they differ from your main mortgage, the pros and cons of taking one out, and how mortgage advisors like Eden Hawk Financial Solutions can help you decide if one is right for you.

What Is a Further Advance Mortgage?

This type of mortgage is an additional loan that lets you borrow additional funds on top of your existing mortgage. This means that you can borrow more money against the equity of your home. The amount you can borrow will depend on how much equity you have in your property. In general, lenders will allow you to borrow up to 85% of your home’s value through a further advance mortgage.

How Does a Further Advance Mortgage Work?

A further advance mortgage works similarly to a traditional mortgage. You will make regular payments, usually every month until the loan is paid off. The distinguishing feature of a further advance mortgage is that it effectively results in having two separate loans secured against your property, which has significant implications for your financial obligations.

The first loan, which is typically the primary mortgage you took out when purchasing the property, remains in place, with its original terms and conditions intact. This initial loan continues to have its own set of monthly mortgage payments that you must pay.

The second loan, referred to as the “further advance,” is an additional borrowing secured against your personal loan on the same property. This further advance can be used for a variety of purposes, such as borrowing for home renovations, a deposit for a second property or other significant expenses. However, this loan also comes with its own distinct set of monthly debt repayments, separate from those of your primary mortgage.

In essence, having both the primary mortgage and the further advance mortgage means you are managing two separate financial obligations simultaneously. This can have both advantages and disadvantages.

The Benefits of a Further Advance Mortgage

One of the main benefits is that it allows you to access the equity in your home without having to sell your property or refinance your entire mortgage. This means that you can complete improvements or renovations without having to move. In addition, these mortgages often offer a lower initial interest rate than personal loans or credit cards, making them good value for money, in many cases.

Green Additional Borrowing

Green additional borrowing is a further advance mortgage that is specifically designed so you can borrow money for energy-efficient home improvements. It is offered by some lenders who want to encourage homeowners to make improvements that decrease their carbon footprint by improving their property’s energy efficiency.

The types of energy-efficient improvements that you can fund through green additional borrowing include insulation, double-glazing, solar panels, and energy-efficient boilers. These improvements can make your home more energy-efficient, reduce your carbon footprint, and save you money on your energy bills.

The Drawbacks of a Further Advance Mortgage

The main drawback of a further advance mortgage is that it increases your overall debt. Having two mortgages secured against your property means that you will have more debt to pay off, and additional monthly payments, which can be stressful and overwhelming for a borrower. In addition, these mortgages often have higher setup fees than traditional mortgages, which can add to the cost of borrowing. Also, each loan may have a different interest rate, deposit, repayment term, early repayment charges, and terms and conditions, which can make the financial landscape more complex to navigate.

By consolidating your debts into a mortgage, you may be required to pay more over the entire term than you would with your existing debt which could increase the amount of interest payable overall.

How to Apply for a Further Advance Mortgage

From Your Current Mortgage Lender

Getting further advances from your existing lender can be a convenient way to access additional funds. The process typically involves contacting your current lender and expressing your need for additional borrowing. They will assess your eligibility based on factors like your creditworthiness, current loan-to-value ratio, and financial stability.

You may need to provide updated financial information and documentation to support your application. Once approved, your lender will determine the terms, including the interest rates and repayment schedule for the further advance. It’s essential to compare these terms with other lending options to ensure you’re getting the most suitable deal. Overall, this option can streamline the borrowing process, as your current lender already has a relationship with you and your property, but it’s crucial to weigh the terms and conditions carefully before proceeding.

From a New Lender

When searching for further advances from a different mortgage lender than your original mortgage, it’s essential to approach the process strategically. Begin by researching various lenders and their mortgage products to find one that offers the most suitable mortgage deal, including favourable terms and a competitive interest rate. Before you switch lenders, it’s advisable to consult with a mortgage broker who can help you navigate the market and look to identify a better deal based on your financial situation and borrowing needs.

When you’ve selected a lender, you’ll need to go through their application process, which includes providing financial documentation and undergoing a credit check. The new lender will assess your eligibility and may conduct a valuation of your property. Once approved, they will offer you a further advance with specific terms and conditions. Be sure to carefully review these terms and compare them to your existing mortgage to ensure that switching lenders will benefit you financially in the long run.

Final Thoughts

Overall, further advance mortgages can be a helpful solution for homeowners who need to access the equity in their homes to fund home improvements without taking out a personal loan. However, it is important to consider the drawbacks and the impact on your overall debt before considering a new mortgage product. If you are unsure whether a further advance mortgage is right for you or which options offer the most suitable deals, it is always a good idea to seek professional advice from a reputable mortgage broker, like Eden Hawk Financial Solutions.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT

Secured Loans are on a referral basis