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SECOND CHARGE MORTGAGES
What are second charge mortgages?
A second charge mortgage, often referred to as a ‘homeowner loan’ or ‘secured loan’ is a mortgage taken out on a residential property that already has an existing mortgage secured against it, allowing homeowners to borrow against the remaining equity.
Where your current mortgage has the first legal ‘charge’ attached to your property, when you take out a second mortgage, a second legal ‘charge’ is added, hence the name. As with any mortgage secured on your property, your property is at risk if you do not keep up the repayments.
There are several reasons why a second charge mortgage may be considered: -
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If you are struggling to get some form of unsecured borrowing – such as a personal loan, perhaps because you are self-employed or have a low credit score.
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If your credit rating has worsened since taking out your first mortgage, remortgaging to a new mortgage to cover your house loan plus a further loan could mean you end up paying a higher interest rate on the whole new mortgage so you will pay more interest overall. Taking out a second mortgage would mean you get to keep the rate on your existing mortgage and only pay the higher rate on the additional borrowing.
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If your current mortgage has a high early repayment charge, it might be cheaper for you to take out a second charge mortgage rather than to remortgage to release equity from your property.
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If you have some high interest debts that you would like to consolidate, bringing your monthly payments down (you should think carefully before securing other debts against your home. Consolidating debt may mean that you will pay more interest in the long run which could increase the total amount you pay back).
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If you have some home improvements that you would like to make, that may then add value to your home.
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If your current mortgage benefits from low interest rates, you might lose these if you remortgage.
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If your first mortgage is interest only, remortgaging could mean you have to move to a repayment mortgage with more costly monthly payments.
The suitability of the examples above will depend on your personal circumstances.
What may you need to apply for a second charge mortgage?
Proof of Address
A recent council tax bill or utility bill issued with the last 3 months
Proof of Income
Evidence requested will vary depending on whether you are employed, self-employed, receiving benefits, receiving a pension etc.
Proof of Outgoings
This is required to assess if you can afford the monthly mortgage repayments.
What are second charge mortgage terms?
Terms for a second charge mortgage can be anywhere between 5 and 30 years depending on certain factors such as, but not limited to, the length remaining on the first charge mortgage, your age and lending into retirement plans.
Second charge mortgage rates?
The rates offered for a second charge mortgage can vary greatly depending on a number of factors including, loan size, equity available in the property and credit history.