If you want to borrow additional funds from your current mortgage lender and have some equity in your property, a further advance may be the right option for you. But what exactly is a further advance, what can you use it for and how can you get one?
What is a further advance?
A further advance is an additional loan taken out with your current mortgage lender. It runs alongside your mortgage and is secured against your property, just like your mortgage is.
It can be a good option if you’re happy with your existing lender and don’t want to remortgage, your lender offers you a competitive interest rate for a further loan or you’re satisfied with your current mortgage deal and don’t want to switch to a new one.
The interest rate charged for a further advance is usually different to the one for your existing mortgage and can be higher.
What can you use a further advance for?
There are various reasons why you may want to borrow more money via a further advance:
- The funds can enable you to pay for home improvements, which should increase the value of your property.
- It provides the means to pay for a deposit on another property. For example, a buy-to-let investment or a holiday home.
- A further advance can be used to consolidate your debts. As the loan is spread out over a long term, the interest rate should be lower than the rates payable for credit cards or personal loans. However, as it’s payable over a longer period, more interest is paid overall, making it a more expensive option.
- The funds can allow you to buy a share in the freehold of your property or a new extended lease.
- A further advance enables you to buy out an ex-partner following a separation or divorce.
The criteria to get a further advance on your mortgage
Lenders have different criteria when offering a further advance, with the two main requirements being your affordability for the loan and your reason for wanting it. You usually need to have had your current mortgage for a minimum amount of time, such as 6 months. There also shouldn’t be any arrears on your mortgage when applying for a further advance.
Lenders typically offer a loan-to-value (LTV) ratio of 85% and some set a minimum further advance amount, such as £10,000. A minimum term is usually stipulated too, such as 2 years. Some lenders also require a new valuation to be carried out on your property.
The pros and cons of a further advance
There are various advantages and disadvantages to consider before deciding whether a further advance is right for you.
Pros
- It allows you to keep your existing mortgage, which is good if you’re happy with your current deal and lender.
- The further advance is borrowed over a long term. This allows you to spread the cost of the loan and usually means you benefit from a lower interest rate than a personal loan or credit card.
- It means that you don’t have to remortgage and be penalised with an early repayment charge.
Cons
- The additional borrowing is secured against your property. This puts your property at risk if you’re unable to keep up with the repayments.
- Borrowing over a long term means that more interest is paid overall. This makes it a more expensive option than others in the long run.
Is a further advance the right choice for you?
Our mortgage brokers are here to offer you impartial advice on further advances and the alternatives to help you make an informed decision. Just give us a call on 01322 907 000 to discuss your circumstances, how much you want to borrow and the reason for wanting to borrow additional funds. We’ll ascertain whether a further advance is the best option or an alternative, such as a remortgage or second charge mortgage, is better suited to your situation.