A second charge mortgage is a versatile and cost-effective way of raising finance against your home. It’s a useful alternative to a re-mortgage, especially if you have a good rate that you don’t want to lose.
With a second charge mortgage you can borrow more money than you would be able to with a personal loan for a much better rate, making it an ideal solution if you’re looking to use your home to raise funds.
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A second charge mortgage is a loan that is secured against your property. It is called a second charge mortgage because it is secured against your home after your main mortgage. You can only have a second charge mortgage if you already have a mortgage.
A second charge mortgage works in the same way as a regular mortgage. You borrow an agreed amount of money, over an agreed amount of time, and make monthly payments to repay the loan. As with a regular mortgage, your home could be at risk if you fail to maintain your monthly payments.
There are many reasons to get a second charge mortgage. Most people use them for the following purposes:
- To complete home improvements or renovations to their property, such as fitting a new kitchen, converting an attic into an additional bedroom, or building an extension.
- To pay off existing debts, such as credit cards, personal loans and store cards, and reduce monthly outgoings.
- To purchase expensive or prestige items, or pay for family weddings or milestone anniversary trips abroad.
- To pay off a tax bill or a divorce settlement.
Or a combination of any of the reasons above.
Keep in mind though, that borrowing money – especially when it’s secured against your property – should always make financial sense. Our advisers will discuss your situation with you to make sure that taking out a second charge mortgage is the right thing for you to do, as there could be other alternatives.
When you re-mortgage, you replace your current mortgage with a new one, usually when you’ve come to the end of your introductory or fixed rate deal. You would do this to benefit from a similar or better rate and avoid going onto the lender’s standard variable rate, which is usually more expensive.
A re-mortgage pays off your old mortgage in full, leaving you with a new mortgage to pay back.
With a second charge mortgage, you keep your current mortgage in place. The second charge mortgage is separate to your main mortgage, so you’ll have your main mortgage payment and the second charge mortgage payment to make each month.
Keeping the second charge mortgage separate means that you can borrow the money you need without having to refinance your main mortgage.
You might want to keep your current mortgage in place if you have a rate that you’re happy with (especially in today’s financial climate).
You might also have penalties to pay if you were to re-mortgage within your fixed rate or introductory period. These penalties can mount up to thousands of pounds, depending on how much your mortgage is worth and how much time is left on your deal.
Leaving the mortgage alone and taking out a second charge mortgage can be more cost-effective and prevent you from paying unnecessary charges.
The terms for second charge mortgages are as flexible as regular mortgages, and the term you choose will depend on your circumstances and your goals. You can usually have a second charge mortgage from between 3 and 30 years in most cases.
The term will also depend on how much you are borrowing and the affordability requirements. The longer the term, the cheaper the monthly payments will be. You should also be aware that the longer you have a mortgage, the more interest you’ll end up paying back over the term.
Yes, you can. When you re-mortgage, as well as paying off your old mortgage, you can pay off the remaining balance of your second charge mortgage.
It’s also possible to re-finance it by taking out another second charge mortgage. This will pay off the first one, leaving you with a new second charge mortgage to pay back. This is usually done when a better rate is available, or when doing so will reduce your monthly outgoings.
If you are due to re-mortgage, or if you have a second charge mortgage you are thinking of refinancing, always speak to a broker, to get the right advice and the best possible deal.
Yes, you can, but you should be aware of any early repayment charges or penalties that might be applicable. If you are considering this, always speak to a broker for advice.
Historically, the rates for second charge mortgages were generally higher than most regular mortgages, but that’s not necessarily the case in today’s economy, with mortgage rates still being so high.
The rates for second charge mortgages are very competitive and with the range of lenders on our panel, we’ll be able to find you some of the best deals on the market.
Yes, you can. In fact, many second charge lenders are experienced in helping people with not-so-perfect credit scores and some have products specifically designed for people with bad credit.
One of the most common uses for second charge mortgages is for debt consolidation – to clear up bad credit (by paying off County Court Judgements, for example) or to get rid of debt that is starting to cause problems, before it gets out of hand.
If you do have bad credit, then it’s likely that the rate available to you won’t be as good as it could be if you have good credit. But there are still some very competitive rates out there, and they can be much better than the rates on standard credit cards and personal loans.
No, you can’t. Second charge mortgages are only available to home owners, who already have a mortgage in place.
Representative example: Borrowing of £40,000, plus £595 lender fee, plus £3,000 broker fee, totalling £43,595, over 192 months on a 5-year fixed product with an initial borrowing rate of 9.2%, following a variable rate of 9.6%. There would be 60 monthly instalments of £434.49, following 132 monthly instalments of £442.52. Total amount payable £84,577.09, made up of: Mortgage amount £40,000, Interest £40,887.09, Lender fee £595, Broker fee £3,000, Exit fee £95. Overall cost for comparison purposes 11.4% APRC.