Avoiding Early Repayment Charges Whilst Raising Additional Funds

Case Study – Raising Capital Without Remortgaging

The Situation

A homeowner contacted their mortgage adviser after running short of funds during a substantial home renovation project.

With building works already underway, contractors required payment within the next month to continue the project. Delaying the work risked increased costs and the possibility of being left with an unfinished property.

Although the customer had significant equity in their home, they had only recently taken out a five-year fixed rate mortgage at a highly competitive interest rate. Redeeming that mortgage to raise additional funds would have resulted in early repayment charges of approximately £16,500, as well as replacing their existing low-rate mortgage with a new product at a considerably higher interest rate.

The amount they wished to borrow also exceeded what many mainstream lenders were prepared to offer based solely on income, making it increasingly difficult to find a suitable solution.

The Advice

Following a full assessment of the customer's circumstances, objectives and affordability, our adviser concluded that a second charge mortgage represented the most suitable option.

Rather than replacing the existing mortgage, the second charge loan was arranged alongside it, allowing the customer to retain the benefits of their existing fixed rate whilst raising the additional capital required to complete the renovation.

The recommendation avoided substantial early repayment charges, preserved the customer's competitive first mortgage, and provided a separate loan structured around their future plans. The product also offered the flexibility to repay the second charge without penalty should the customer decide to refinance once their existing mortgage reached the end of its fixed rate period.

The Outcome

Funding was completed within 19 days, allowing the building works to continue without interruption.

By keeping their existing mortgage in place, the customer avoided more than £16,500 in immediate redemption charges and retained a mortgage product that remained significantly more competitive than those available in the market at the time.

Most importantly, the recommendation achieved the customer's objective of completing their home improvements whilst minimising unnecessary costs and maintaining flexibility for the future.