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Are you a homeowner who would love to use the equity in your property to make some home improvements, buy a second property or even a brand new car, but you can’t remortgage right now and don’t want to take out a personal loan because of the high interest rates?
Then a Second-Charge Mortgage could be the answer you’re looking for.
A second charge mortgage is an additional secured loan based on the amount of equity available in your property.
Having a second charge mortgage means you can release some of the equity you’ve built up in your property since taking out your first mortgage without having to remortgage.
These mortgages are only available to homeowners, however you can apply for one on your main residence or on another property you own, such as a Buy To Let.
Having a second charge mortgage means having two mortgages on the same property – your existing (first) mortgage and a second mortgage.
While it’s worth considering a second charge mortgage when other options of raising funds aren’t available to you, it does mean adding additional debt against your property.
Make sure you can afford the monthly instalments on your second mortgage, as well as the monthly repayments on your first, before you apply.
While remortgaging is one of the more usual methods of releasing equity, you may not be in a position to remortgage right now.
That could be because you’re mid-way through a five year fixed-term that has hefty early repayment penalties, or your existing mortgage is on a low interest rate, but your lender is charging a much higher remortgage rate.
Alternatively, your employment situation has changed and your lender’s criteria has made it harder to release funds through remortgaging.
Another reason is you’ve tried unsuccessfully to qualify for a personal loan because your credit score isn’t as healthy as it could be.
Whatever your circumstances, because a second charge mortgage is based on your property’s value – you may find a second charge mortgage is a cheaper and easier way to borrow the money you need.
Second Charge mortgage products are usually offered by specialist second charge lenders. It’s best to talk to a mortgage broker who is familiar with the way these lenders assess second-charge mortgage applicants and understands their mortgage products and mortgage rates.
A good broker will help you gather all the information you need to prove you will be able to afford the monthly instalments on the loan.
You can expect the usual income and credit checks, so it’s important to get your credit rating up to scratch beforehand.
Your property will be valued so the lender can calculate how much to lend you based on the amount of equity you have in the property.
Second charge mortgages should only really be used to release equity to be used to increase the value of your property, like a home improvement project.
However tempting it may be to use the charge loan to consolidate your debt, it’s a bad idea to use your equity to pay off credit cards and secure other debts against your home. Not only will you reduce the value of your property, you now have a long term debt to repay, which could cost even more if variable rates go up.
As attractive as a second charge mortgage may sound, there are some drawbacks that you should be aware of before applying.
For example, If circumstances change, will you be able to afford two lots of mortgage repayments?
If you fall into financial difficulty your home may be repossessed. If that happens your first mortgage will be cleared first.
If there’s not enough money left to pay off the second mortgage, the lender will pursue you for payment. And, if you move house, your equity may not be enough to cover the deposit on your new home.
Remember, your home may be at risk if you cannot keep up repayments on your mortgage.
When choosing to work with a mortgage adviser, it’s always advisable to choose one that is authorised by the Financial Services Authority and has a registered office in England. You can use the broker’s Firm Reference Number to check whether they are on the financial services register and registered in England.
FCA disclaimer
Based on our research, the content contained on this website is accurate as of most recent time of writing. Lending criteria and policies may change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice.
Some types of buy to let, commercial, bridging, mortgages are not regulated by the FCA.
Please think carefully before securing other debts against your home or releasing equity from a property you own. As a mortgage is generally secured against your home or your investment property, it may be repossessed if you do not keep up with repayments on your mortgage.
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