Remortgage vs Home-Owner Loan

p0ppa8ear118

The circumstances: My wife and I have separated and have agreed to pay-off the debts we jointly accrued (~£10K) by taking equity from our jointly-owned/mortgaged home. This gives us both peace of mind on the debt and a clean slate, while enabling my wife to continue living in the property until the children are older. We are paying the mortgage payments 50/50 and intend to increase our term to ensure the payments are manageable.

My confusion: Our current lender (HSBC) is prepared to give us a home-owner loan at 1.84% (no fee, 2-year fix) on the £10K and recommends we leave our current mortgage at it's 1.99% rate until the fixed period expires on 31/08/20, thus avoiding a £630 fee for changing early. We can they remortgage at a new rate from the end of August. What isn't clear to me is whether, if we waited until August, I could forego the home-owner loan and simply remortgage with a lower equity. So in practice, I'd be looking to get a new mortgage for ~£213K, of which £203K goes to HSBC to clear the mortgage account with them and £10K is paid into our bank account to then clear the debt with. I'm just not sure it works like that?

I would greatly appreciate any insight that the community can offer. I suspect that there is even a danger that I am being needlessly apprehensive taking the home-owner loan option as it just wasn't what I was expecting when I started down this path.