Are you a homeowner looking for extra funds to invest in your property or consolidate debt?
A further Advance mortgage might be the solution for you. With this type of loan, you can borrow additional money on top of your existing mortgage, giving you access to lower interest rates and flexible repayment options.
But before jumping in, it’s important to understand the eligibility criteria and carefully consider all costs involved. In this article, we’ll explain what a further advance mortgage is and guide you through the application process.
Key Takeaways
- A further advance is additional borrowing from your current mortgage lender.
- It can be a good option if your lender offers a competitive further advance and you don’t want to remortgage or switch lenders.
- Using a further advance to pay off debts may end up costing more in the long term.
- Factors to consider before applying for a further advance include having a good credit record, calculating affordability, and checking if the value of your home has increased.
What can a further advance be used for?
A further advance can be used for various purposes, such as funding home improvements or raising a deposit for a second Property.
Each lender has their own permitted uses.
Here are five common ways people use a further advance:
Home Improvements
Many homeowners choose to use a further advance to fund renovations or upgrades to their current property. This can include things like adding an extension, renovating the kitchen or bathroom, or improving the energy efficiency of the home.
Second Property Deposit
If you’re looking to buy a second property, such as an investment property or a holiday home, a further advance can help you raise the necessary deposit. This allows you to expand your property portfolio without having to sell your existing home.
Debt Consolidation
Some may choose to use a further advance to consolidate their debts into one loan with lower interest rates. This can make it easier to manage monthly payments and potentially save money on high interest charges.
School fees
A further advance can also be used to cover education expenses, such as tuition fees for yourself or your children. This can provide financial support for pursuing higher education and investing in future opportunities.
Emergency Expenses
In times of unexpected financial need, a further advance can provide quick access to funds without having to go through the lengthy process of applying for other types of loans. It allows you to address emergency expenses promptly and efficiently.
Benefits of a mortgage further advance
You may benefit from a further advance on your mortgage due to lower interest rates compared to other types of loans and the extended repayment period that reduces monthly payments.
The interest rate is usually different from your main mortgage, making it a competitive option if you don’t want to remortgage or switch lenders. You always need to be mindful of any early repayment fees that could apply if you move your mortgage elsewhere.
This type of borrowing can be particularly useful for funding home improvements or raising a deposit for a second property like a buy-to-let investment.
However, it’s important to exercise caution when considering using a further advance for debt repayment. While mortgage interest rates are generally lower than personal loan rates, you may end up paying more in the long term. Additionally, using this type of borrowing puts your property at additional risk if you’re unable to keep up with the payments.
As the lender isn’t changing, further advances can be set up reasonably quickly. Depending on your loan to value, and the purpose of the loan, the lender may ask a surveyor to visit your property.
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Eligibility Criteria
To qualify for a further advance on your mortgage, you will need to have enough equity in your property, have a good credit history and be fully up to date with your mortgage repayments.
Lenders have their own maximum LTV percentages, but many will go up to 90% of your property value. Don’t forget that this will be the combined value of your main mortgage plus the additional borrowing.
It’s important to note that meeting these eligibility criteria does not guarantee approval for a further advance. Lenders will also consider other factors such as the purpose of the loan and your income stability. They will conduct a financial affordability check to ensure that you can comfortably afford the increased monthly payments.
Before applying for a further advance, evaluate whether it is the best option for your needs. Consider alternative financing options such as personal loans or remortgaging. Seek professional advice to understand how taking out a further advance may impact your existing mortgage terms and long-term affordability.
Application Process
When applying for a further advance on your home loan, start by contacting your existing lender or seeking advice from a mortgage broker.
They will guide you through the application process and help you gather the necessary documentation, such as proof of income and property valuation. The lender will then assess your application and conduct a financial affordability check to determine if you qualify for the further advance. In some cases, a property survey may be required to determine its current value.
If approved, the lender will make an offer outlining the terms and conditions of the further advance. Make sure you understand these terms, including any associated fees and interest rates.
Once you have drawn down the new loan, most lenders will create a second mortgage account for the further advance and take the monthly payments separately.
Alternatives to a further advance
Borrowing extra money from your existing lender should be fairly straightforward, but it’s a good idea to weigh up other alternatives as well.
The big advantage of a further advance is that the loan is secured against your home, this means you will be charged a competitive interest rate.
Personal loans are another consideration, these are not associated with your property, and are available for smaller amounts, typically from £1000.
If you need to borrow larger amounts but your current lender is unwilling to help, you have two choices:
Second charge mortgage: This is very similar to a further advance but you will apply to a separate lender for the loan. It’s a bit more expensive.
Capital raising remortgage: This involves moving the whole mortgage to a new lender and borrowing the extra you need at the same time.
Capital Raising Mortgages
Capital raising mortgages are a way for homeowners to borrow money against the equity in their home. You can borrow extra money (raising capital) when applying for a remortgage. This is where you switch your mortgage to a new lender.
Next Steps and Tips for Applying
To apply for a further advance on your mortgage, gather all necessary documentation and contact your lender or a mortgage broker for guidance. They will provide you with the necessary information and assist you throughout the application process. Make sure to have documents such as proof of income, bank statements, and any other relevant financial information ready.
If the money is for substantial home improvements, (loft conversion, extension etc) the lender will probably want to see the plans and quotes.
Once submitted, they will assess your application based on factors like affordability, credit history, and the current value of your home. Having a good credit record will increase your chances of approval. The amount you can borrow will depend on your personal circumstances and the equity in your property.
In summary
A further advance mortgage can be a convenient and beneficial option for homeowners looking to access additional funds for various purposes.
With competitive interest rates, extended repayment periods, and flexibility in using the funds, it provides an attractive financing solution. However, meeting eligibility criteria such as having sufficient equity in the property and a stable income is essential. It is also important to carefully consider the costs associated with this type of loan and explore alternative financing options before making a decision.
Also in this section
Remortgages
Capital Raising Mortgages
Day One Remortgages Explained
Debt Consolidation Remortgage
Guide to Remortgaging
Product Transfers
Transfer of equity mortgage
This post first appeared on Respect Mortgages - Be In The Know, please read the originial post: here
