WHAT IS A SECOND CHARGE MORTGAGE?
A Second Charge Mortgage is an additional loan on top of your existing mortgage. These are sometimes known as ‘Secured Loans’.
Unlike re-mortgaging – where you change your basic mortgage to another one – a Second Charge Mortgage is paid alongside your current mortgage. Where your current mortgage has the first legal ‘charge’ attached to your property, when you take out a second mortgage, a second legal ‘charge’ is added, hence the name.
You need to be a homeowner already to get a Second Charge Mortgage, though you don’t need to live in the property. It is usually used to free up the equity in your home.
WHEN WOULD YOU USE IT?
Second Charge Mortgages are often used to raise extra money for a specific reason. These could include major repairs, extensions or personal costs.
Second Charge Mortgages are an alternative way of raising this money to either extending your existing mortgage (a ‘Further Advance’) or remortgaging to a different, larger basic mortgage.
As mortgage applications have become tougher in recent years, Further Advances and remortgaging can be difficult for those who have become self-employed or have variable income through a small business.
Second Charge Mortgages are often used instead of remortgaging if your credit rating has dropped meaning you could face higher interest rates on your remortgaged loan. They are also used when the early payment fee is very high on your current mortgage, making remortgaging costly.
Like basic mortgages, your property is at risk if you don’t keep up the payments.
THE FINE DETAILS
- Secured against the equity of your property
- Borrow up to £2m
- Low credit score doesn’t affect application as much as with basic mortgage
- Useful for people with fluctuating income or the self employed
- Good for people who need funding quickly – three-week completion is possible
- Up to 95% LTV
- No upfront costs like survey charges, before your mortgage is approved
BENEFITS FOR SMALL BUSINESSES AND SEMI-PROFESSIONALS...
- Can be used for renovations and repairs
- Often cheaper than remortgaging
- Can be secured quickly to help specialist projects move forward
- Easier to get if you have a variable income
REASONS TO CHOOSE A SECOND CHARGE MORTGAGE
There are a number of reasons why a Second Charge Mortgage might be more suitable than remortgaging...
1. Avoid early redemption charges (ERCs): If you have an existing mortgage, remortgaging could lead to paying an early redemption fee that can run into thousands of pounds.
2. Retain low rates: If your current mortgage benefits from low interest rates, you might lose these if you remortgage. A redemption fee that can run into thousands of pounds.
3. Keep interest only: If your first mortgage is interest only, remortgaging could mean you have to move to a repayment mortgage with more costly monthly payments.
4. Poor credit rating: For those whose credit has suffered, remortgaging becomes harder.
5. No fixed income: Small business owners can often be self-employed with variable income or various income sources. This makes remortgaging harder.