If you own a home and want to raise a significant sum, two routes typically emerge: a remortgage, which replaces your existing deal and releases equity in a single new mortgage, or a secured loan (also called a second charge mortgage), which borrows alongside your existing mortgage without disturbing it. Both use your property as security. Both can unlock the same equity. The decision between them is not about which product is inherently superior: it is about which one is cheaper and more practical given your specific mortgage situation.
The single most important factor in that decision is usually the early repayment charge (ERC) on your existing mortgage. A large ERC can make breaking a current deal very expensive, and in those cases a secured loan will often be significantly cheaper overall even though its interest rate is higher. But the calculation is more nuanced than simply checking whether an ERC exists: it also depends on the rate differential between the two products, the amount being borrowed, and the terms of each loan. This guide walks through both options, provides a worked example, and includes a cost comparison calculator so the decision can be made on real numbers rather than headlines.
At a Glance
- A remortgage replaces your existing mortgage; a secured loan sits alongside it without disturbing it. With a remortgage you end up with one lender, one monthly payment. With a secured loan you have two separate commitments running in parallel, and the existing mortgage continues on its current terms: the core difference explained.
- Early repayment charges are often what determine which route is cheaper. A large ERC can make breaking a current deal very expensive: a 2% ERC on a £180,000 mortgage is £3,600. In those cases a secured loan will often be significantly cheaper overall even at a higher rate: the decision framework.
- Use the calculator to compare the total cost of each route for your specific figures. The break-even ERC, the exact charge at which both options cost the same, varies significantly depending on loan amount, rates, and term. The embedded calculator makes this comparison explicit: cost comparison calculator.
- Rate, term, and total cost matter more than monthly payment alone. A shorter secured loan term at a higher rate can produce a lower total cost than a longer remortgage at a lower rate. The worked example below shows this in a realistic scenario: worked cost example.
- Both options carry repossession risk if repayments are not maintained. The secured loan route specifically means two lenders each hold a charge on the property. In a default scenario, both can potentially pursue enforcement: risks of each option.
The Core Difference
The simplest way to understand the difference is to think about what happens to your existing mortgage. A remortgage ends the current deal. The existing mortgage lender is repaid in full (or you transfer to a new product with them), and if the new mortgage is larger than the existing balance, the difference is released as cash. You end up with one mortgage, one monthly payment, one lender. A secured loan, by contrast, leaves the existing mortgage completely untouched. A second, separate loan is arranged against the property, secured by a second legal charge registered at HM Land Registry behind the first. You end up with two separate commitments running in parallel.
Remortgage to release equity
One mortgage replaces another
The existing mortgage is closed and a new, larger one is opened. The difference between the old balance and the new mortgage amount is paid to you. Only one lender holds a charge on the property. This is the standard approach at the end of a fixed-rate deal when switching to a new product or lender.
Secured loan (second charge mortgage)
A second loan sits alongside the first
The existing mortgage continues on its current terms. A separate second charge loan is added. Two lenders each hold a legal charge on the property. The second charge lender ranks behind the first in repayment priority. Two monthly payments run concurrently.
Both products are regulated by the FCA. Since 2016, second charge mortgages have been regulated under the same Mortgage Credit Directive rules as first charge mortgages, so both routes come with the same consumer protections: affordability assessment, a standardised European Standardised Information Sheet (ESIS) before commitment, and regulated conduct if difficulties arise. The second charge mortgage guide explains the regulatory framework and legal charge structure in detail.
How Remortgaging to Release Equity Works
Remortgaging to release equity means borrowing more than the current outstanding mortgage balance when you switch deals. A homeowner with £150,000 remaining on a mortgage who needs £30,000 would remortgage to £180,000, with the lender paying out the existing £150,000 balance and releasing the remaining £30,000 as cash. The new mortgage is at the new lender’s current rate, over a new term.
The economics of this route are most favourable when timed correctly. Most fixed-rate mortgage deals carry early repayment charges during the fixed period, typically 1% to 5% of the outstanding balance. Breaking a £150,000 mortgage with a 2% ERC costs £3,000. Once the fixed period ends, ERCs usually disappear and the borrower can remortgage freely. Remortgaging is also available as a product transfer with the same lender (borrowing more on a new deal without the legal complexity of switching lenders) though product transfer rates are not always competitive. The first charge rate on a remortgage is almost always lower than the rate on a second charge secured loan for the same property and borrower profile, because the first charge lender faces lower risk.
How a Secured Loan Works to Raise Capital
A secured loan borrows against the equity in a property without touching the existing mortgage. The amount available is determined by the combined loan-to-value (the sum of the existing mortgage plus the new loan as a percentage of the property value): most second charge lenders lend up to 85% combined LTV. The loan is assessed on affordability, credit history, property condition, and the existing mortgage terms, and a second charge is registered at HM Land Registry when the loan completes.
Because the second charge lender ranks behind the first mortgage lender in repayment priority, they carry higher risk. If the property were sold following a default, the first charge lender is repaid first; the second charge lender receives whatever remains. This elevated risk is why second charge mortgage rates are higher than first charge mortgage rates, typically several percentage points above what a remortgage of the same property would achieve. This rate premium is the main cost of protecting an existing mortgage deal. The secured loan eligibility guide covers what lenders assess in detail, and the APR guide explains how secured loan rates are structured.
The Decision Framework: Five Triggers
In practice, the decision usually comes down to a small number of concrete factors. The following triggers are a practical starting point: if most point in one direction, that route is worth exploring first.
| Situation | Points towards | Why |
|---|---|---|
| Existing fixed deal has 1+ years to run with a substantial ERC | Secured loan | ERC adds thousands to the remortgage cost; secured loan avoids it entirely |
| Current mortgage rate is significantly below what is available today | Secured loan | Remortgaging locks in a higher rate on the entire balance; secured loan protects the existing rate |
| Existing deal is ending in the next 3 months or already on SVR | Remortgage | No (or minimal) ERC; can consolidate into one competitive deal |
| Large amount to borrow relative to existing balance | Remortgage | The rate differential matters more at larger amounts; first charge rate advantage compounds over a long term |
| Speed is important (funds needed within 4 to 6 weeks) | Secured loan | Second charge mortgages typically complete in 4 to 8 weeks; remortgaging with a new lender often takes 8 to 12 weeks |
No single trigger is definitive on its own. A large ERC and a favourable existing rate both push strongly toward the secured loan route, but if the amount being borrowed is very large and the existing deal ends soon, remortgaging may still win on total cost. The calculator below makes this comparison explicit for specific figures.
A Worked Cost Example
Abstract comparisons are hard to evaluate. The following example shows how the numbers play out in a realistic scenario.
Suppose a homeowner wants to borrow £40,000 for a home renovation. They have a fixed-rate mortgage at 2.1% with two years remaining, an outstanding balance of £180,000 on a property worth £380,000, and an ERC of £3,600 (2% of the balance). The best available remortgage rate for their profile is 5.2%. A secured loan is available at 9.0% APR.
| Cost item | Secured loan route | Remortgage route |
|---|---|---|
| Rate on the £40,000 borrowed | 9.0% APR | 5.2% APR |
| Term on the £40,000 borrowed | 10 years | 15 years |
| Monthly cost of the £40,000 borrowing | £507 | £318 |
| Total interest on the £40,000 | £20,804 | £17,213 |
| Early repayment charge | £0 | £3,600 |
| Total cost of the additional borrowing | £20,804 | £20,813 |
In this scenario the two routes are almost exactly equal: a difference of just £9 in total cost. The lower remortgage rate on the extra £40,000 is almost entirely offset by the ERC. This illustrates the key insight: the ERC does not need to be enormous to make a secured loan competitive on total cost, particularly when the secured loan has a shorter term (10 years vs 15 in this example).
If the ERC were £5,000 instead of £3,600, the secured loan would be £1,391 cheaper overall. If the ERC were £0 (mortgage at end of its fixed term), the remortgage would be £3,591 cheaper over the same periods. The break-even ERC in this scenario, the exact charge at which the two options cost the same, is approximately £3,591. Any ERC above that figure makes the secured loan the more cost-effective route. Use the calculator below to run the same comparison with your own figures.
Cost Comparison Calculator
Adjust the inputs to reflect your situation. The calculator compares the total cost of each route for the amount you want to borrow. It does not model your full mortgage, only the cost of the additional borrowing under each option. Figures are illustrative.
Amount and secured loan details
Remortgage details
Secured loan route
Remortgage route
Illustrative only. Compares the cost of the additional borrowing under each route, not your total mortgage. Actual costs depend on rates and fees offered to you. Obtain quotes from lenders and seek independent advice before deciding.
Risks of Each Option
Both routes involve securing debt against a property, which means the fundamental risk is the same: the property may be repossessed if repayments are not maintained. This is a legal right held by any lender with a registered charge. The risk is real rather than theoretical and applies regardless of how comfortably affordable the repayments seem at the point of taking the loan. Circumstances change (income falls, interest rates rise, unexpected costs emerge) and a sensible affordability assessment needs to account for plausible adverse scenarios, not just the present situation.
The secured loan route carries a specific additional dimension of risk: two lenders each hold a charge on the property. In a default scenario, both can potentially pursue enforcement. The second charge lender, who ranks behind the first in priority, may face a shortfall if the property sale proceeds do not fully cover both debts. This does not mean the risk to the borrower is doubled (both lenders are FCA-regulated and must follow the same pre-enforcement requirements) but it does mean more parties are involved if things go wrong. For the remortgage route, the risk is concentrated in one lender and one repayment, which is simpler to manage, but the higher combined mortgage balance means more is at stake if the property declines in value. The risks of secured loans guide and the what happens if you cannot repay guide cover the consequences of default in detail.
Using a Broker
The comparison between a secured loan and a remortgage involves accessing two distinct markets with different lender panels. Mortgage brokers typically specialise in first charge products; secured loan brokers specialise in second charge products. Some whole-of-market brokers cover both, which is the most useful starting point for this comparison. A broker who can source quotes from both markets simultaneously can produce a genuine like-for-like comparison with live rate quotes and fee schedules, rather than the illustrative figures a calculator can provide.
FCA rules require brokers to disclose how they are remunerated and to act in the customer’s best interest. Both mortgage brokers and secured loan brokers must be FCA-authorised, which can be verified on the Financial Services Register. A good broker will also identify whether consent is needed from the existing mortgage lender before a second charge can be registered: some lenders require this, and establishing it early avoids delays later in the process.
Tools to help you assess your position
Calculator
Directly relevant to the “how a secured loan works to raise capital” section: shows how much equity is available in the property and what combined LTV a proposed secured loan would represent. The combined LTV position determines both the maximum available loan amount and the rate band that applies, both of which affect whether the secured loan or remortgage route is more cost-effective.
Tool
Secured loan eligibility checker
Provides a soft-search eligibility assessment across income, credit profile, and LTV simultaneously, without leaving a mark on the credit file. Directly relevant to this comparison: obtaining an indicative secured loan rate before approaching a mortgage broker allows a genuine total cost comparison to be made before any formal applications are submitted.
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Checking won’t harm your credit scoreFrequently Asked Questions
Can I take a secured loan if my mortgage has no ERC but I want to protect my rate?
Yes. Rate protection is one of the main reasons to choose a secured loan even when no ERC applies. If you fixed at 1.5% in 2021 and have three years remaining, remortgaging today would replace that rate on your entire balance with a current market rate of 4% to 5%. The secured loan sits alongside the existing mortgage and leaves that 1.5% rate completely intact. The cost of protecting that rate is the higher second charge rate on the new borrowing, but for many borrowers the saving on the existing balance makes this worthwhile even before ERC considerations.
The break-even question in this situation is different from the ERC question. Instead of comparing ERC vs rate differential, you are comparing the higher rate on the new borrowing against the cost of losing the favourable rate on the existing balance for the remaining fixed period. The more you owe on the existing mortgage, the more valuable rate protection becomes, even at a higher second charge rate.
Does taking out a secured loan affect my ability to remortgage later?
It can. When the existing fixed-rate deal ends and you go to remortgage, the secured loan will be visible on your credit file as a running commitment. Mortgage lenders assess total debt service (all monthly repayments as a proportion of income) when deciding whether to approve a new mortgage deal. A secured loan increases that total, which may reduce the maximum mortgage amount available at renewal, or in some cases affect acceptance. It is not an automatic barrier, particularly if affordability is strong and the loan has been managed cleanly, but it is a factor worth planning for at the outset.
There is also a practical step to be aware of: when you remortgage to a new lender, the new lender will need to take account of the existing second charge. In most cases this is straightforward (the second charge lender simply remains in place) but it adds a step to the legal process. If the remortgage involves paying off or changing the secured loan at the same time, additional legal coordination is required.
Which option is faster if I need the money quickly?
A secured loan is typically faster. The second charge mortgage process usually takes four to eight weeks from application to funds, and a well-prepared application with all documentation ready can complete at the lower end of that range. A remortgage involving a new lender typically takes eight to twelve weeks due to the additional legal requirements of discharging the existing mortgage and drawing a new one. Product transfers with the same lender can be faster (sometimes two to three weeks) but the rate available on a product transfer is not always competitive versus the full market. The how long a secured loan takes guide explains the process stages in detail.
If speed is a genuine priority, the secured loan is usually the better route regardless of the cost comparison. The certainty of a shorter, more predictable timeline is itself valuable when borrowing for a specific purpose with a deadline: a planned renovation, a purchase opportunity, or a time-sensitive consolidation.
What happens to the secured loan when I sell the property?
When a property is sold, all charges registered against it must be discharged from the sale proceeds before the balance is passed to the seller. The first charge mortgage is repaid first, then the second charge secured loan. If the sale price is sufficient to cover both, the process is straightforward and the seller receives the remaining equity. If the property has fallen in value and the combined debt exceeds the sale price, a shortfall arises and the second charge lender may not be fully repaid. In that case, the lender would pursue the borrower for the outstanding amount, typically through the courts.
This scenario (negative equity with a second charge) is uncommon in a rising or stable market but becomes a realistic risk in a falling market, particularly if the property was bought or remortgaged at the peak of a cycle. Both lenders would typically need to agree before a sale could proceed where proceeds are insufficient, which can complicate and delay the sale process. Maintaining a reasonable equity buffer above the combined debt position reduces this risk.
Squaring Up
The choice between a secured loan and a remortgage comes down to one central question: does breaking your existing mortgage deal cost more than the rate premium on a second charge loan? That question cannot be answered in the abstract: it depends on the ERC amount, the rate differential between first and second charge products in the current market, the amount being borrowed, and the terms of each loan. The calculator above provides a structured way to compare total costs for specific inputs. For a genuine market comparison with live rate quotes, a broker with access to both mortgage and secured loan markets is the most practical next step.
Both routes carry real repossession risk and should only be taken on with a clear affordability assessment that holds up under adverse scenarios. Neither is a low-stakes decision: both increase the total debt secured against the property and both require sustained repayment discipline to avoid the consequences of default.
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Checking won’t harm your credit score Check eligibilityThis article is for informational purposes only and does not constitute financial advice. The calculator figures are illustrative and based on the inputs entered; they do not represent a quote from any lender. Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it. Always obtain independent financial advice before making significant borrowing decisions.
