Second charge mortgages
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How does a second charge mortgage work?
A second charge mortgage is a loan where you use the equity you have in your home as security. It basically means you’ll have two mortgages running on your home.
Equity is the percentage of your property owned outright by you, which is the value of the home minus any mortgage owed on it. A second charge mortgage allows you to use equity in your home as security against another loan.
You need to be a homeowner to take out a second charge mortgage, but you don’t need to live in the property. This means if you’re a landlord, then you may be able to use your rented property against your loan.
But just like any mortgage, if you fail to keep up with the payments then you run the risk of losing your home. Your initial mortgage always takes precedence over a second charge one in these scenarios.
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What is remortgaging?
If you currently have a mortgage, or own your property outright, you can remortgage your home which means getting a new mortgage, either with your existing lender or a new one. Even if your current mortgage has a duration of 30 years or more, you don’t have to stay tied to the same one for that length of time.
Remortgaging is common and can help you to get a better deal and take advantage of good rates. You can see it as re-evaluating your finances and finding the best deal to ensure you’re not paying more than you need to. Just like you might do with your utility bills.
How much equity is in your property, it’s current value and what kind of loan-to-value (LTV) percentage you want will all affect the type of second charge mortgage you can get. Working with a second charge mortgage broker is the best way to make it simple and easy. Get started online.
What is a second charge mortgage?
A second charge mortgage is a type of secured loan, which means that your home will be used as security if you cannot make the repayments. It’s very similar to your normal mortgage, where you’ll borrow a certain amount, with your home being used as the guarantee against the loan.
This means that you’ll then be paying two mortgages rather than one, but allows you to avoid remortgaging, which in some cases can be a costly process.
Taking out a second charge mortgage allows you to borrow money for a variety of reasons, without having to lose your current mortgage.
Second charge mortgages vs remortgaging: what’s the difference?
When taking out a second charge mortgage, you’ll be taking out a loan which is secured against the equity available in your current home which essentially acts as a second mortgage. When remortgaging, you’re refinancing your existing mortgage deal.
Remortgaging can sometimes work out to be more expensive than a second charge mortgage, perhaps if your credit rating has dropped since you initially took the mortgage out, or if your mortgage has a high early repayment charge.
Which option is right for you will depend on your own personal circumstances. Make an enquiry to speak to a specialist advisor who can explore your options and find the right second charge mortgage for you.
What are the common uses of a second charge mortgage?
There are lots of situations that mean you might want to take out a second charge mortgage rather than choosing to remortgage when you want to raise money. For example, you might need to make some home improvements, or maybe you’ve got a big purchase coming up like a new car, school fees or a wedding.
Other reasons might be to consolidate debts, raise funds for a deposit on another house, or for business purposes.
Read more in our Guide: Debt Consolidation Options for Homeowners.
What are the risks of a second charge mortgage?
As with any type of mortgage, if you don’t keep up with the payments on your second charge mortgage then you run the risk of losing your home. Bear in mind if you come to sell the house, then it's your first mortgage which will be cleared first, before any extra money goes toward paying off the second one.
If you’re only looking to consolidate debts, or only need to free up a small amount, then taking this approach might mean that you end up paying more interest in the long term too.
Why use Haysto?
We get how it feels when you’re refused a mortgage. We’ve been there. Haysto exists because the mortgage world is broken. If you don’t have a shiny credit rating, you’re self-employed with a complex income, or just don’t fit the mould, the odds are completely stacked against you. We just don’t think that’s fair.
We help when others won’t
Unlike others, we only work on bad credit, self-employed and complex mortgages. That’s all we do. And we’re up for a challenge.
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