What is a second charge mortgage?
A second charge mortgage, also known as a secured loan or second mortgage, allows you to use any equity you have in your home as security against another loan. This means you will have two mortgages to pay off on the property.
Only homeowners can take out a second mortgage, but you don’t need to be living in the property to qualify.
How does a second charge mortgage work?
A second charge mortgage is based on the difference between the value of the property and the amount you owe on your first mortgage. It’s completely separate from your original mortgage and can be a good way of raising funds for your planned home improvements without remortgaging.
When applying for a second charge mortgage, you’ll first need to get permission from your current mortgage lender. If they’re happy for you to go ahead, you can then provide proof to the second lender that you can afford the repayments on both loans.
Second charge mortgage vs remortgage
If you’ve been planning to renovate your home for a while, you may have considered remortgaging too. Here are the differences between a second charge mortgage and remortgaging:
Second charge mortgage
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You can keep your existing mortgage rate
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You’ll avoid an early repayment charge
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Interest rates tend to be higher
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If your credit rating has gone down since taking out your first mortgage, remortgaging could mean you’ll pay more interest on your entire mortgage. With a second charge mortgage, you only pay extra interest on the additional amount you’re borrowing.
Remortgaging
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Remortgaging can give you access to better interest rates
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One monthly mortgage payment
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Often comes with penalties for ending your current deal
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Lower the LTV on your mortgage
Is a second charge mortgage a good idea?
If it makes more financial sense to leave your current mortgage as it is due to its favourable interest rate, or to avoid early repayment charges, then a second charge mortgage might be a good idea for you.
However, this type of mortgage might not be suitable if you’re only just managing to keep on top of the payments of your primary mortgage. This is because you could lose your home if you fail to keep up repayments on either mortgage.
Second charge mortgage pros and cons
The pros of second charge mortgages:
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Independent from your original mortgage - it won’t affect your current interest rate.
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More flexible criteria - especially if you are self-employed.
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Affordable rates
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No overpayment fees
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Consolidate debt
The cons of second charge mortgages:
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You’ll normally pay a higher interest rate than on your first mortgage.
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You could lose your home if you fall behind on the repayments.
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You’ll have to pay off both mortgages in full if you move house, which could leave you with very little deposit.
How long does a second mortgage take?
Taking out a second charge mortgage is usually a quicker process than that of securing your first mortgage, with some lenders granting your funds for home improvements in the matter of days. If you’d like to discuss your options in more detail, please feel free to get in touch with our expert mortgage brokers. The team will be able to advise whether a second charge mortgage is suitable for you and help you through the mortgage application process so you can get to work on your renovation.
