A second-charge mortgage allows homeowners to raise money by securing a loan against the equity in their home or investment property. In this guide, with the help of Gary Hemming, Commercial Lending Director at leading Second Charge Mortgage Brokers ABC Finance, we will break down what a secured loan is, its advantages and disadvantages and how to get one.
Now, Let’s Get Started
What Is A Second Charge Mortgage?
A second charge mortgage is a type of secured loan that sits alongside your current mortgage as a separate loan agreement. Second charge mortgages can be taken out with a different lender than the one that provided your mortgage as long as both lenders are willing to work together. A good second charge mortgage broker will be able to help with this.
They can be taken over a long period, unlike a personal loan, often up to 30 years, with some lenders even offering up to 35 years.
Is A Second Charge Mortgage A Good Idea?
Here, we handed over to the expert and asked Gary Hemming to explain when a second charge mortgage could be a good idea. He said:
“Second charge mortgages are a good idea for any borrower who is looking to raise any amount from £15,000 and up and is willing to secure the borrowing against a property that they own.
That said, whenever you’re considering securing a loan against your property, the asset will be at risk should you fail to keep up the repayments. As such, it’s important that you think carefully before committing, compare options from multiple providers and, where possible, get advice from an impartial expert.”
What Are The Advantages And Disadvantages Of Second Charge Mortgages?
Here are some pros and cons of second charge mortgages:
- Lower interest rates: Second charge mortgages typically have lower interest rates than unsecured loans, such as personal loans or credit cards, because they are secured against the value of your property.
- Flexibility: You can use a second charge mortgage for a variety of purposes, including home improvements, debt consolidation, or to raise funds for a large purchase.
- Borrow more: Depending on the value of your property and your income, you may be able to borrow more with a second charge mortgage than you could with an unsecured loan.
- Risk of repossession: If you fail to make the required payments on a second charge mortgage, you risk losing your property to repossession.
- Longer repayment terms: Second charge mortgages typically have longer repayment terms than unsecured loans, which means you may end up paying more in interest over the life of the loan.
- Negative equity: If the value of your property decreases while you are repaying a second charge mortgage, you may end up with negative equity (i.e., your property is worth less than the amount you owe on the mortgage). This can make it difficult to sell your property or refinance the mortgage.
How To Get A Second Charge Mortgage
To get a second charge mortgage, you will typically need to:
- Determine how much you want to borrow: Consider how much you need to borrow and how much you can afford to repay each month.
- Check your eligibility: Most lenders will have eligibility criteria that you need to meet in order to qualify for a second charge mortgage. This may include requirements for your credit score, income, and the value of your property.
- Shop around: It’s a good idea to shop around and compare different lenders and loan products to find the best deal for you. Be sure to consider factors such as the interest rate, fees, and repayment terms.
- Gather required documents: You will typically need to provide documentation to support your application, such as proof of income, proof of identity, and proof of ownership of your property.
- Submit an application: Once you have gathered all of the required documents, you can submit an application to the lender of your choice. The lender will review your application and, if approved, will offer you a loan agreement outlining the terms and conditions of the loan.
Review and sign the loan agreement: Carefully review the loan agreement to make sure you understand the terms and conditions of the loan. If you agree to the terms, you will need to sign the agreement and provide any required collateral (such as a mortgage on your property).