What is a Second-Charge Mortgage and Should you Consider One?
Second-charge mortgages can be a very good alternative if you want to access additional borrowing potential. This is especially the case if you feel as though you are going to be facing penalties if you move from the mortgage you have now. Want to find out more? Take a look below.
How do Second-Charge Mortgages Work?
A second-charge mortgage is a secured loan. It uses the equity that you have in your home right now, as collateral. In other words, it works from the difference between the general value of the home and the amount that you owe on the mortgage you have now. It is separate from the original mortgage you have and it is a very good way for you to access additional funds without re-mortgaging. One important factor to keep in mind is that if you are unable to pay off the second mortgage, or your first, you could end up having your home repossessed. You may end up benefitting from an extra mortgage if you are going to face large repayment charges if you move from the mortgage you have now, or if you are on a good deal right now and if you move, you will end up paying more.
Am I Eligible to take out a Second-Charge Mortgage?
You can only take out this kind of mortgage if you are a homeowner right now. You do not need to be living in the property in order to apply though. You can take out this mortgage on buy-to-let flats for example. If you want to calculate how much you could qualify for, then as mentioned in the above example, you’ll need to look at the value of your home. If your home is worth £300,000 and you have a mortgage for £100,000 then your general capital will be £200,000. If you do want to proceed down this route, then you will have to get permission from the lender that you have now. Proving you can make the repayments is also an important step.
How Much Could I Borrow?
The amount you can take out on a second mortgage will largely depend on your income. It will also depend on the amount of money that you have in your home. The minimum usually stands at around £1,000. Interest rates on second homes tend to be higher too, so you’ll be paying more in interest when compared to your first home.
Are There Any Drawbacks?
So now you know that there are many benefits to taking out a second-charge mortgage, but are there any drawbacks? Unfortunately, there are. You may end up losing your property if you do not make the repayments. You will have to pay both mortgages if you move, and you will also face a higher interest rate. That being said, if moving mortgages would mean that you pay more overall, then getting a second-charge mortgage could still be a very good option and worth exploring.
Are There Any Alternatives?
If getting a second-charge mortgage is not suited to you, then you do have alternatives. You could remortgage for a higher amount, or you could choose to use your savings. You could also choose to get a personal loan if you feel as though the interest rate is lower. This might not be the case in most instances, but it does depend on your personal situation.
So, getting a second-charge mortgage can be wise, but it’s important to look at the pros and cons before you go ahead and make your decision. This will help you to be more informed when it comes to the amount you’ll be paying, and the risks associated with your choices.
NB: We don’t advise on Second Charge Loans but we do work closely with our partners who we can refer you too.
