What Are Second Charge Mortgages?
A second charge mortgage, also called a second mortgage, second charge loan or secured loan, is an additional or second loan to borrow money on top of your existing mortgage. When you take a second charge mortgage, you still own your property; however, your home is provided as legal security during the loan period and is at risk of repossession if you cannot repay the loan.
As implied by the name "second charge mortgage," you will simultaneously have two mortgages on your home. Essentially, you do not change your mortgage loan but pay back two loans at once.
Why take out a second-charge mortgage?
Some reasons include the following:
Debt consolidation: to merge all your existing debts and simplify repayments. You owe the same debt as before, but instead of owing money to multiple creditors, you'll owe a larger amount to one creditor. Having a single amount, in general, will reduce your monthly commitments; however, in the longer term, this may cost you more money in interest.
Additional investment: If you are investing in other properties as a landlord, you may need a deposit.
Personal spending: Home improvements, buying a new car, a holiday of a lifetime, or even an unexpected tax bill.
Financial history: If you have been declined for a mortgage or loan, you may qualify for a second-charge mortgage.
How much can I borrow on a second mortgage?
The amount depends on the equity you have in your property. The equity is the value of your home minus the mortgage you owe. For example, if your home is worth £200,000 and has £100,000 left to repay on your current mortgage, you have £100,000 worth of equity. The amount mortgage lenders offer varies, but an average of around 75%-100% of the equity is typical.
What is the risk?
You must understand the terms associated with your second charge mortgage. If you cannot afford the costs, you could lose your home. This is why we take considerable time to discuss your circumstances, what is suitable for you and all the risks involved during our discussions.
A second-charge mortgage can be beneficial in some situations but also damaging if you cannot afford the two repayments over an extended period and can cost more in interest payments over the longer term.
What about affordability?
You will still need to prove you can afford the repayments and have evidence of your income, but your equity can increase if a property's value rises over time.
Borrowing money is a serious matter; you need to consider whether you can afford the payments over the entire term of the loan. Whatever you decide, you should think carefully before securing debts against your home with a new mortgage.
If you are considering getting a second-charge mortgage, please get in touch with our friendly and experienced team.
Call: 01506 537111
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